4 Retirement Expenses That May Surprise You

May 9, 2023

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When it comes to planning for retirement, most of us are probably planning to stash money away for basics like housing, transportation and food. But there are a lot more expenses you may want or need to cover. Sure you’ll want to save for the fun stuff like travel, but unexpected retirement costs could add up quickly and impact the financial legacy you plan to leave behind.

So what kind of expenses are we talking about? Here are four to consider.

1. Health care retirement expenses

You are eligible to sign up for Medicare when you turn 65 – but keep in mind this health care program doesn’t fully cover everything (visit Medicare.gov for coverage details). And even when it comes to expenses Medicare does cover, many people may still need to get supplemental health insurance and prescription drug coverage. A few examples include:

Medigap. This is extra insurance you can buy from a private health insurance company to help pay your share of out-of-pocket costs in original Medicare. Medigap is also known as “Medicare Supplement Insurance.” For more details, visit Medicare.gov.
Medicare prescription drug coverage. This optional coverage can help pay for prescription drugs you need. To sign up, you have to join a Medicare-approved plan that offers drug coverage. Each plan comes with different costs and vary in specific drugs covered. So it’s a good idea to do a little comparison shopping. Visit Medicare’s drug coverage webpage for more details.
Health Savings Account (HSA). If you’re working and currently have a high-deductible health insurance plan (an HDHP), you can open a Health Savings Account (HSA) to save money to help pay for qualified medical expenses.

As you plan for your health care needs in retirement, don’t forget about long-term care expenses. (Medicare generally does not cover them.) Long-term care includes services and support for your personal care needs like bathing, dressing and using the bathroom.

One way to prepare for long-term care expenses is to build these retirement costs into your budget. For instance, setting aside at least some money in a high-yield savings account to cover these potential costs can make it easier if you do eventually need long-term care.

Another option is to invest in long-term care insurance. Generally speaking, it can be cheaper to enroll sooner rather than later in these programs (if you wait too long, you could either be denied coverage altogether or charged high premiums).

2. Taxes in retirement

You typically need to pay income taxes on your retirement account withdrawals – unless they’re stashed in a Roth IRA or Roth 401(k) and you’ve followed the rules of that plan.

And depending on where you live, some Social Security recipients may have to pay state and federal taxes on their benefits.

This is why tax planning can be especially important in your retirement years, when there are important decisions to be made about Social Security, pensions, IRA distributions, etc. The amount you'll pay in taxes depends, in part, on how much you're withdrawing and what your retirement income will be. Think about working with a financial or tax advisor to learn more about tax management strategies that could help you save on taxes in retirement.

3. Car repairs and home maintenance

Unexpected expenses like car and home repairs can pop up in retirement.

Your car could need new brakes or tires. You may need to replace a major home appliance, repair a roof or deal with flood damage after a natural disaster.

Making sure you have a solid emergency fund in place to deal with these expenses can be more important than ever in your retirement years. After all, you won’t be working anymore, and you don’t necessarily want to pull more money out of your investment accounts just to cover these types of expenses.

4. Boomerang kids and elderly parents moving in

For retirees, having their adult children or elderly parents move back home can raise a number of cost-of-living expenses (e.g., groceries, utilities, transportation, etc.).

Whatever the circumstances, retirees may want to consider setting expectations for how long they can continue providing financial support for their children.

Setting expectations and boundaries can help ensure you’re providing your adult children with the support they need in a financially smart way. Many parents want to help as much as they can, but don’t let your desire to help derail your own financial plans (i.e., retirement security).

And for those with elder parents living at home, having open discussions (while easier said than done) might help you anticipate what sort of financial support you may have to provide your parents as they age.

If your household situation is complex, think about connecting with a financial advisor, who can help assess your finances and see whether you’re in a position to help your loved ones.

Marcus by Goldman Sachs® and Clarity Money® are both brands of Goldman Sachs Bank USA.This article is for informational purposes only and is not a substitute for individualized professional advice. Articles on this site were commissioned and approved by Marcus by Goldman Sachs®, but may not reflect the institutional opinions of The Goldman Sachs Group, Inc., Goldman Sachs Bank USA or any of their affiliates, subsidiaries or divisions.