I once walked by the United Nations building in New York City and failed to notice it. I marvel at that now, but it's a good reminder that people can sometimes miss big things. And unfortunately, some big things we miss can cost us.
Here's a look at a bunch of things you shouldn't overlook as you plan for your excellent retirement -- because if you don't consider them, you might pay a steep price.
Image source: Getty Images.
Common retirement expenses
As you think about how much income you'll likely need in retirement -- and how you'll get it -- you'll probably consider expenses such as the following:
- Housing
- Food -- both groceries and dining out
- Clothing
- Travel
- Utilities
- Insurance (for your life, home, vehicles, pets, long-term care, etc.)
- Entertainment
- Transportation
- Healthcare
- Repairs and upkeep
- Memberships
- Fuel
- Pets
- Debt repayments
- Gifts
- Donations
- Emergencies
Those are all good. But read on for some expenses you might have missed.
1. Inflation
Inflation may not seem like an expense but can deplete your coffers as much or more than lots of expenses. For example, if inflation remains at the long-term average of around 3%, over 25 years, your purchasing power could be cut in half. If you've planned to have, say, $100,000 in income in year 25 of your retirement, it might only be able to buy what $60,000 buys today.
Keep inflation in mind as you plan and estimate. It can be smart to aim for a much larger nest egg -- or set up income streams that increase over time, such as from dividend-paying stocks or annuities with inflation adjustments. (Note that Social Security benefits get nearly annual inflation increases.) For many people, retiring with $1 million may not be enough.
2. Housing costs
Think about your housing next -- and beyond your mortgage or rent payments -- because homes cost much more than just that. For example, even if you enter retirement mortgage-free, you'll still face costs for homeowner insurance, property taxes, utilities, repairs, and maintenance. Some retirees bear other expenses on top of those, such as for converting a bathtub into a walk-in shower.
3. Healthcare costs
Then there's healthcare. Yeah, you know it costs a lot, and you may have included it in your retirement budget -- but do you really appreciate just how costly it can be, especially in retirement?
According to Fidelity, a 65-year-old person retiring in 2025 can expect to spend $172,500, on average, on medical and healthcare expenses throughout their retirement -- and that doesn't even include long-term care, over-the-counter medications, or most dental services. For a married couple, the average total is $345,000.
Sure, most of your healthcare costs may be paid by Medicare, but even if Medicare pays 80% of an expense, 20% of, say, a $60,000 bill is still a hefty sum -- $12,000. Healthier retirees will likely pay less, in general, than unhealthy retirees, but you never know. Perhaps you should budget generously for healthcare costs, then get or stay as healthy as possible and hope for the best.
4. Long-term care
A particular kind of healthcare needs its own discussion: long-term care. This type of insurance costs a lot because (a) long-term care costs a lot, and (b) there's a good chance you'll require it. A 2022 report from the U.S. Department of Health and Human Services estimated that 56% of Americans turning 65 would need long-term care at some point in their retirement.
Per the 2024 Genworth Cost of Care survey, the median cost of a home health aide was $77,792 annually, while the national median cost of a semi-private room in a nursing home was $111,325.
Think about whether buying a long-term care policy makes sense for you. (Note, too, that there are some hybrid life insurance and annuity policies that feature long-term care benefits.)
5. Retirement income taxes
Retirement can mean freedom from working for a living but doesn't mean freedom from taxes. Uncle Sam will likely still be wanting a cut of your retirement income -- and your state too (unless you live in one of the 13 states that don't tax retirement income). And, of course, there can be property taxes, sales taxes, and other taxes. Sorry.
6. Your loved ones
Finally, here's another category many people overlook: your loved ones. Many retirees end up spending considerable sums helping their kids, grandkids, or other loved ones -- whether that's bailing one out of a tough situation or helping another make a down payment on a home. If there's any chance of this happening in your future, think about planning for it and including it in your retirement budget.
If you plan for these six spending categories, your retirement may be less stressful and you'll avoid expensive surprises.
