Financial Experts: 6 Expenses Many Retirees Forget To Plan For
Written by
Madeline Duley
Edited by
Molly Sullivan
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After years of the 9-to-5 grind and putting personal goals on hold, retirees deserve to enjoy their golden years filled with the activities they missed out on during their working years. From morning tennis lessons to spending more time with their grandchildren or picking up new hobbies, retirement should be a time of joy. But beware, no one wants their sunset years tarnished by surprise expenses that deplete their savings before they even have a chance to indulge in these years of leisure.
And who better to advise retirees on surprise expenses than the retirement experts themselves? Here, experts shed light on the six hidden costs that often escape the radar of retirement planning and could interrupt your post-career paradise.
Healthcare
It’s easy to forget that after you retire, you lose the safety net of employer-sponsored health insurance plans. After that plan goes away, you are left paying 100% of your healthcare expenses and insurance premiums.
“You should understand your options for health insurance, whether it’s retiree coverage from a former employer, the public marketplace (an Affordable Care Act plan) or Medicare if you are 65 or older,” said Chris Urban, CFP and founder at Discovery Wealth Planning. “It is also a good idea to think about where you intend to live in the short-medium term as insurance policies on offer could change if you move to a different state and if you travel domestically and/or internationally.”
Different Taxes
Unfortunately, retirement doesn’t offer a tax-free future. Brace yourself for property taxes and potential hits on your Social Security benefits and investment gains.
“When making a withdrawal from traditional 401(k)s and IRAs, you’ll be expected to pay income tax on each one,” said Kim Gattis, senior vice president and financial planning manager at UMB Bank. “If your retirement income is over a certain amount, part of your Social Security benefit might also be taxed. In addition, you may need to pay capital gains tax on other types of accounts. With the help of tax strategies, you can minimize what the government takes from you. These strategies include moving to a state that doesn’t charge income tax, delaying receipt of benefits until age 70 and reassessing your investment holdings.”
Travel Costs
Retirement is all about taking advantage of the freedoms you didn’t have during your working years and taking advantage of your opportunities to wander the globe. However, if you’re unprepared for how expensive travel is, you might not be able to hit all the locations on your retirement bucket list.
Travel, accommodations, transportation, meals and entertainment can quickly surpass expectations. Planning for these expenses and creating an annual travel budget can help retirees enjoy their adventures without worrying they are compromising their long-term financial security.
Emergencies
Unexpected expenses can strike even the most meticulously planned retirements.
“Often people forget that despite solid retirement and savings plans, emergencies still happen,” Gattis said. “And if you incur a large, unexpected expense you won’t be able to earn that money back like you would if you were working. Aim to keep a separate liquid emergency account from your retirement budget and your regular savings account for a rainy day. For emergency savings, it is generally recommended to have a minimum of three months of expenses.”
Hobbies
As your schedule frees up, indulging in hobbies is likely a no-brainer. With more time and energy to devote to the things you love, however, be prepared for hobby costs to accumulate over time.
Whether you dive into sports, crafts or cooking, the costs of supplies, equipment or training can add up quickly and become expensive to maintain. It’s important to consider how much you want to spend yearly on your interests and build it into your budget so you are prepared.
Caring for Loved Ones
As you enter retirement, you might find yourself taking on new responsibilities, such as needing to provide financial support to elderly parents or grandparents.
Even if the need is not immediate now, it’s wise to consider the potential costs of in-home care, assisted living facilities or nursing homes for your elderly family members in need of long-term care services. In 2021, the annual rate of long-term care services in the U.S. ranged from $20,280 to $108,405, depending on the type of service necessary, according to Statista. If you haven’t adequately budgeted for these unforeseen family obligations, they can make a serious dent in your retirement savings.
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