10 Major Retirement Costs Overlooked by Many Americans

Editor’s Note: This story originally appeared on Boldin.

Key retirement costs are being overlooked by many Americans.

According to a survey by the Employee Benefit Research Institute (EBRI), fewer than 50% of Americans “have planned for emergency expenses or calculated how much is needed to cover health expenses” in retirement.

And, the Society of Actuaries found that while more than 6 in 10 pre-retirees and 7 in 10 retirees have given at least some thought to how their lives will change throughout retirement, only 16% of pre-retirees and 27% of retirees feel very prepared for financial events in the future.

Pre-retirees are more likely to feel not too prepared or not at all prepared than retirees (29% vs. 17%).

Here is a full rundown of the top critical but overlooked costs in retirement planning — and what to do about them.

1. The Fun Stuff

It may seem surprising, but people are apt to leave the good (fun) stuff out of their projected retirement budgets.

The EBRI report suggests that only about half of retirees say that their lifestyle is about what they planned it would be before they retired. And, many report that their overall spending and expenses, particularly travel expenses, are higher than expected after they retire.

Travel, personal care, hobbies, gifts for friends and family and all the things that make retirement worthwhile are too often not budgeted appropriately before retirement.

What’s worse, these costs can quickly add up and could cause major financial issues later in life if they have not been accounted for.

2. Inflation

The one benefit of a high inflation rate? We have all learned (or relearned) that inflation can be a big deal — especially after retirement when your fixed income and resources may not keep pace with the increased costs of goods and services.

Inflation makes things cost more, reducing the amount you can buy. If you want future financial security, you have to factor inflation into your spending projections.

When projecting your future finances, inflation is a critical consideration. In fact, it is one of the most important inputs for your calculations. Your future spending and chance of affording retirement may be very different if you are projecting using a 2% versus 8% inflation rate.

You should calculate your future financial security using assumptions for inflation that make you comfortable with your projections. However, you don’t necessarily have to use the recently high rates. Instead, consider using a number that reflects a long term projected average.

Note: The average yearly inflation rate in the U.S. from 1960 through 2023 was 3.8% per year. And, some say that we are better at monetary policy now than we were before. The average inflation rate over the past 30 years was 2.27%.

3. Future Maintenance Costs

Though you may have stopped punching a clock at work, time marches on in retirement. If you own a home or a car, you’ll have to maintain those assets, just like you did before. The roof will need work at least one more time, and you could roll another 50,000 miles on your car.

Unfortunately, calculating future maintenance costs is more difficult than figuring out the depreciation of your property and its replacement value.

Accidents are also a future hazard, and with the increase in extreme weather events around the world, you can bet trees will blow down, rains will erode your foundations and extremes of hot and cold will crack your pavements.

It is recommended that you create a detailed budget for your future retirement spending. The NewRetirement Planner allows you to enter spending and how that spending will change in hundreds of different categories.

4. Emergency and Other Unforeseen Costs

The only thing you can almost guarantee is that the unexpected will probably happen. But how do you predict and plan for what you don’t know will happen?

It is not a trick question, and there are no easy answers, but you have ways to protect yourself.

While you can’t predict the future, you can plan for the possibility of an emergency. It is recommended that you:

• Maintain an emergency fund.
• Make sure you carry adequate insurance.
• Build flexibility into your overall retirement plan.

5. Taxes

According to the Tax Foundation using recent information, the average federal income tax paid was:

• $10,649 by all taxpayers
• $643 by the bottom 50%
• $20,645 by the top 50%
• $36,907 by the top 25%
• $75,406 by the top 10%
• $126,604 by the top 5%
• $412,846 by the top 1%

Now, multiply the applicable number by 20 (or, the number of years you might be retired) and you’ll see that taxes are a big retirement expense and you need to plan for the costs.

6. Health Care

Don’t assume that Medicare will cover all your medical costs in retirement.

According to the 2024 Fidelity Retiree Health Care Cost Estimate, a 65-year-old individual may need $165,000 in after-tax savings to cover health care expenses. The estimate is $315,000 for a couple.

7. Long-Term Care

The costs of long-term care are exorbitant and not usually covered by Medicare. The rates vary widely by location, but, according to Genworth, the national average annual costs are around:

• $20,300 for adult day care
• $54,000 for a private one-bedroom in assisted living
• $59,500 for homemaker services
• $61,750 for a home health aide
• $95,000 for a semi-private room in a nursing home
• $108,500 for a private room in a nursing home

And, you may need to double the above expense estimates to estimate your lifetime costs. A report jointly prepared by the American Health Care Association and National Center for Assisted Living found that the average length of stay for residents in an assisted living facility is about 28 months with the median being 22 months or nearly two years.

Unfortunately, long-term care insurance can be costly and inefficient. However, you have additional options. Explore 10 ways to cover long-term care costs beyond insurance.

8. Retiring Sooner Than You Expect

If you are forced to retire earlier than expected, you are faced with extra years during which you’ll need to cover the costs with your retirement resources.

The Society of Actuaries found that today’s pre-retirees plan to retire at a considerably older age than current retirees. The actual median retirement age is 60, yet 2 in 10 pre-retirees said they plan to work at least until age 68 and 14% said they do not plan to retire at all.

While that’s an admirable goal, the fact is that many seniors are unable to continue working past normal retirement age.

And surveys from the Employee Benefits Research Institute have shown that about half of retirees left the workforce before they were ready.

Many retirees who find themselves with an earlier-than-expected retirement turn to “bridge employment,” a job that may be part-time and pay less, but helps bridge the gap between their last job and full-time retirement.

9. Longevity

How long you live is the biggest wildcard of all. You may think budgeting your money until your 100th birthday is fine — until your 101st birthday rolls around.

Life expectancy in the United States has soared from 70 years in 1971 to around 80 years in 2020, and advances in medicine could keep those in their 40s and 50s today alive well into their 80s and 90s. Every year is a gift and an extra cost that must be planned for.

While the average life expectancy for Americans has dropped in recent years, the losses are not even across demographics.

You can use a life expectancy calculator, actuarial tables, or just take a guess at how long you will live based on your parents’ longevity. However, it is probably a good idea to make your money last a bit longer than you think you’ll live.

10. Sandwich Generation Costs

The so-called sandwich generation — usually baby boomers — are people who are caring for their elderly parents while simultaneously financially supporting their adult children.

A study from AARP found that:

• 32% of midlife adults ages 40 to 64 provided regular financial support to their parents in the past year, and 42% expect to be doing so in the future.
• Half of midlife adults are still providing money to their adult children aged 25 or older (51%) for basic expenses.

Providing this care can be costly, both in cash outlays, but also in lost wages.

Think through costs associated with family members — and many other potentially overlooked retirement costs.