10 Expenses Retirees Cannot Overlook

Your senior years can be some of the best of your life, but they can also be incredibly expensive. The average worker expects retirement will cost nearly $2 million, according to a survey from Charles Schwab. There are countless costs to consider as you’re planning for retirement, but some are more significant than others. As you’re saving, be sure you’re accounting for these expenses in your budget.

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Once you turn 65 years old, you become eligible to enroll in Medicare. While Medicare can substantially defray the costs of healthcare, you’ll still be responsible for all premiums, deductibles, copays, and coinsurance. If you opt for Original Medicare (or Parts A and B), you’ll face deductibles of $1,408 per benefit period for Part A and $198 per year for Part B. In addition, although you typically won’t pay a premium for Part A, the standard premium for Part B is roughly $144 per month.

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Even if you’re enrolled in Medicare, you may still be responsible for out-of-pocket healthcare costs. Medicare Parts A and B primarily cover hospital visits and outpatient care, and they don’t include coverage for prescription drugs or routine care like dental and vision. For that type of coverage, you’ll either need to enroll in supplemental insurance (at an additional charge) or budget for these out-of-pocket expenses.

Nearly three-quarters (69%) of today’s 65-year-olds will need long-term care at some point, according to the U.S. Department of Health and Human Services, and the average semiprivate room in a nursing home costs more than $82,000 per year. The kicker is that Medicare typically doesn’t cover long-term care, so you’ll either need to save more to pay for this expense out of pocket or consider signing up for long-term care insurance.

Many workers look forward to retirement so they can finally start checking items off their travel bucket list, but vacations can get expensive quickly. In fact, approximately 40% of retirees say they ended up spending more on travel than they’d planned, a survey from Capital Group found. You may not be able to budget for travel down to the penny, but it’s a good idea to set aside some money in your retirement fund specifically for traveling -- especially if you know you’re going to be taking multiple trips each year.

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Once you retire, you’ll likely have loads of free time. This means you may need some new hobbies to keep you busy all day, and these costs can add up. Again, you can’t predict exactly how much you’ll spend on hobbies in retirement, but start thinking now about how you plan to enjoy your free time. If you expect to take up a slew of expensive new hobbies in retirement, it’s best to start budgeting for them now.

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Renovating a home can cost tens of thousands of dollars, and it can take a huge bite out of your budget if you’re not prepared for it. While this expense may not be strictly necessary, you’ll likely be spending a lot more time at home after you retire, and you might want to make updates now and then. Considering you may spend decades in retirement, it’s safe to assume you’ll likely need to renovate at least one room in your house during that time. By thinking about these costs now (especially if you already have renovation projects in mind), it won’t sting quite as much when you’re hit with a hefty bill.

When you invest in a 401(k) or traditional IRA, your initial contributions are tax-deductible, but you’ll owe income taxes on your withdrawals once you retire. That means that the amount you see in your retirement account isn’t actually the amount that is available to spend, so you might have less disposable income than you think. As you’re saving for retirement, try to leave some wiggle room in your budget to account for taxes, or consider saving in a Roth IRA for tax-free withdrawals.

ALSO READ: Here's How Much You Should Have Saved for Retirement by Age 50

Depending on where you live and how much you’re earning, Uncle Sam could take a chunk of your Social Security checks as well. Not all states tax Social Security benefits, and each state has slightly different regulations. So be sure to check your local tax laws to see if you can expect to pay state taxes on your benefits. Whether or not you owe federal taxes will depend on your combined income, which is your adjusted gross income (not including Roth IRA withdrawals) plus half your annual Social Security benefit amount. If your combined income exceeds $25,000 per year for individuals or $32,000 per year for married couples filing jointly, you can expect to pay federal taxes on a portion of your benefits.

Whether the refrigerator stops working, the car starts making unsettling noises, or the dog needs emergency vet care, unplanned expenses are sure to arise sooner or later. While there’s no way to know exactly how much to budget for unplanned expenses, it’s a good idea to set aside at least three to six months’ worth of savings in an emergency fund. If you don’t have an emergency fund in retirement, you could be forced to withdraw more than you’d planned from your retirement fund, which may result in running out of money sooner than expected.

Inflation is a tough expense to budget for, primarily because it’s not necessarily an expense at all. However, it is important to consider how cost-of-living changes could affect your savings. Your money won’t be worth as much in 20 or 30 years as it is now, so don’t stop saving because you think you have more than enough cash in your retirement fund. In addition, think about more immediate cost-of-living adjustments such as moving to a new city or state. You may see your general living expenses skyrocket in a new location, so be sure you’re budgeting for these changes if you plan on relocating in retirement.

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You may not be able to plan for all your retirement costs down to the penny. However, preparing for as many expenses as possible can ensure you’re saving as much as you need to enjoy your senior years comfortably.

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