6 Sneaky Expenses That Can Wreck Your Retirement Budget

With all the work that goes into saving and investing for retirement over your lifetime, you don’t want to reach that stage of your life only to get caught off guard by certain costs. If you’re not careful, your retirement portfolio that you put so much effort into building up can quickly collapse.

That’s not to say that sneaky expenses will instantly drain your retirement portfolio, but it can affect how much retirement income you’re able to withdraw going forward, how much you can pass on to family members, or simply add to the stress that can come from the risk of outliving your retirement funds.

With that in mind, watch out for the following six expenses that can wreck your retirement budget.

One of the most expensive aspects of retirement is often healthcare. Couples with Medicare Advantage plans need to save $189,000 to have a 90% chance of covering healthcare costs in retirement, according to the Employee Benefit Research Institute (EBRI).

“While many retirees may anticipate healthcare expenses, they often underestimate just how much they can accumulate over time, especially as we age and our medical needs evolve. From prescription medications to long-term care, these costs can significantly impact your retirement budget if not properly accounted for,” said Brandy Burch, CEO at Benefitbay.

Although healthcare costs aren’t always flexible, you might find savings by exploring supplemental Medicare insurance plans like Medicare Advantage and utilizing generic drugs, she added.

Even though costs with Medicare Advantage can still be high, that or other forms of insurance might limit surprise expenses compared with just having Medicare.

While you might no longer have a mortgage, housing costs can still be a big chunk of your budget in retirement, especially when home maintenance and repair costs sneak up on you.

“When you’re no longer working, every unexpected repair can feel like a financial setback. Whether it’s a leaky roof, a malfunctioning appliance, or general wear and tear on your property, these expenses can quickly add up and catch retirees off guard,” said Burch.

That said, you can take steps to make these costs more digestible, even if you can’t always predict them.

“Downsizing to a smaller home or relocating to a more affordable area can lead to substantial savings on mortgage or rent payments, property taxes, utilities, and maintenance costs. Additionally, refinancing your mortgage or exploring reverse mortgages may offer further opportunities to reduce housing-related expenses,” said Burch.

Another expense that you might not even consider to be an expense, but which nonetheless affects your retirement budget, is taxes.“Many retirees assume their tax burden will decrease once they stop working, but that’s not always the case. Income from retirement accounts, pensions, and even Social Security benefits can still be subject to taxation, potentially eating into your retirement income more than expected,” said Burch.Speaking with a financial advisor, accountant, or another trusted professional could help you manage your retirement income in a way that minimizes taxes, while also weighing the pros and cons of part-time work in retirement, once you factor in taxes.

Your retirement budget can also get thrown off by “supporting adult children or grandchildren financially,” said Cliff Ambrose, founder and wealth manager at Apex Wealth.While you might want to help family members out, it can be hard to budget for this support if they come to you every time they have unexpected expenses of their own. Consider setting clear boundaries, but if you do want to provide support it is perhaps best to provide a fixed amount per month or year.

While it’s important to get your financial affairs in order, these costs can also add up. Be mindful of “legal or financial fees associated with estate planning or unexpected legal issues,” said Ambrose.However, this might not be an area you want to cut back on, given the importance of matters like establishing a will and important documents like advance health care directives. Depending on the importance of this stuff to you, you might give yourself more breathing room in your budget by cutting back in other areas.“When it comes to cutting expenses in retirement, some categories lend themselves more readily to cost-saving measures than others. One such category is discretionary spending. This includes non-essential items such as dining out, entertainment, travel, and luxury purchases. While these expenses can certainly enhance your retirement experience, they are also the most flexible and discretionary,” said Burch.

Lastly, insurance premiums can be another sneaky expense that throws off your retirement budget. Even though premiums might be stable for a year and you can plan accordingly, it’s hard to anticipate how much they’ll increase every year.And fixed expenses like insurance premiums “may be more challenging to cut without sacrificing necessary quality of life,” according to Ambrose.That said, there are still ways to save on insurance premiums without cutting back on coverage, such as by bundling with one provider or seeing if you can change providers for better deals.“Shop around for better rates on health insurance, homeowners insurance, and auto insurance. By finding more cost-effective policies, you can free up funds for other areas of your budget,” said Burch.