There's a reason so many retirees inevitably wind up returning to work in some shape or form: Retirement has a sneaky way of being more expensive than planned. You can do your best to estimate your costs ahead of time, but ultimately, certain expenses might creep up on you.
Here are a few reasons you could be looking at a higher-cost retirement than anticipated.
1. Your healthcare costs might rise
As people age, health issues tend to arise. Between that and the many costs seniors tend to incur as Medicare enrollees, healthcare can become such a big retirement expense that it trumps housing as the largest one seniors face on a monthly basis.
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Recent estimates from Fidelity find that the average 65 year old retiring in 2023 could spend $157,500 on healthcare throughout retirement, even with Medicare coverage. If the idea of forking over that sum sounds daunting, do your best to pad your 401(k) or IRA while you can. But also, if possible, contribute funds to a health savings account (HSA) if your health plan is compatible with one.
The nice thing about HSAs is that contributions go in tax-free, and you can then invest unused funds and enjoy tax-free gains on any growth you achieve in your account. Withdrawals from an HSA are also tax-free when used to cover qualified medical expenses.
2. Your house might get more expensive
Many people are able to enter retirement with a paid-off mortgage. But even if that's the case, you may find that housing eats up a lot more of your senior income than expected.
For one thing, as homes age, issues tend to pop up -- sort of the same way humans tend to encounter more health problems when they're older. But also, expenses like property taxes and homeowners insurance can rise from one year to the next. In time, you may find that owning a home in retirement -- or at least the home in which you raised your family -- is a more expensive prospect than anticipated.
One thing you may want to strongly consider is downsizing your home as a retiree. And if you have a larger space you don't want to part with, consider renting out a portion of it. Any rental income you're able to generate could greatly help offset your other housing expenses.
3. Your car might cost more to own and maintain
Even if you're no longer commuting to work, you may need a car as a retiree to shop for food, socialize, and just plain function. But again, your costs there have the potential to come in higher than you bargained for.
For one thing, your vehicle might need more work as it ages. Also, your car insurance rates might increase in time due to your age, as some insurers raise premiums for older drivers because the perception is that they're more of a risk.
That's why you may want to consider ditching your car in retirement. Even if you don't have payments on an auto loan to make, between maintenance, insurance, and parking fees, if applicable, you may end up spending more money than you want to.
It pays to at least compare the cost of using a ridesharing service several times a week to the cost of owning a car year-round. You may find that the former is actually more cost-effective if you only need access to a car a few times a week, as opposed to every day.
Retirement might end up being more expensive than your estimates account for -- especially in the context of these specific expenses -- so do your best to save more so you're not left scrambling. Also, you may want to reconsider some of your senior expenses to ease the financial burden.
