4 Retirement Expenses That May Surprise You

Planning for anything in the future can be particularly challenging, as there are uncertainties to consider. Retirement planning is one good example. For instance, while we may have a retirement age in mind, that timeline could shift depending on your financial situation, lifestyle expectations, and market conditions.

Ahead, we’ll go over four expenses that might catch retirees by surprise and why it’s important to account for these costs as part of your retirement planning.

1. Healthcare retirement expenses

You are eligible to sign up for Medicare when you turn 65, but many people aren’t aware that the federal healthcare program doesn’t cover everything.

Original Medicare includes Hospital Insurance (Medicare Part A) and Medical Insurance (Medicare Part B), which typically cover things like doctor visits, labs, preventive care, and hospital stays. Visit Medicare.gov for more coverage details.

And even when it comes to expenses that may be covered, you may still need to purchase supplemental health insurance and prescription drug coverage.

Some potential options 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,” and generally, you must have Original Medicare coverage in order to buy a Medigap policy. For more details, visit Medicare.gov.

Medicare prescription drug coverage. This optional coverage, often referred to as Medicare Part D, can help pay for prescription drugs you need. To get Medicare drug coverage, you have to join a Medicare-approved plan that offers drug coverage. Each plan comes with different costs and varies 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.

One way to sign up for a Part D plan is during your initial Medicare enrollment period. You could also sign up during the annual open enrollment period.

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 does not cover them.)

Long-term care includes services and support for your personal daily care like bathing, dressing, and feeding.

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 help you pay for them if you do eventually need long-term care.

Another option is to invest in long-term care insurance. Generally speaking, the sooner you buy a policy, the better. If you wait too long, you could either be denied coverage altogether or charged high premiums.

2. Taxes in retirement

Tax planning can be especially important in your retirement years, when there are important decisions to be made about Social Security benefits, pensions, required minimum distributions, etc.

For retirement account withdrawals, the amount you pay in taxes depends, in part, on the following:

• How much you’re taking out
• Type of retirement account
• Your retirement income

This is why it’s often a good idea to work with a financial or tax advisor to understand the tax management strategies that could help you save on taxes in retirement. 

3. Home and car repairs

In your retirement years, you’ll likely be spending more quality time at home. Various repair needs can crop up around the house at any time. For example, you may need to repair or replace major home appliances you’ve used for years. And certain home repair costs like roofing, HVAC, and plumbing can be a shock to a retiree’s wallet.

This is why making sure you have a solid emergency fund (or a designated home repair fund) set aside in an easily accessible savings account can be more important than ever in your retirement years, as you generally want to avoid drawing from your investment accounts just to cover these types of expenses.

4. Boomerang kids and elderly parents moving in

Some retirees may find themselves having to financially support their adult children and aging parents at the same time, which could cause significant strain to their finances.

Whatever the circumstances, it’s important for retirees to set expectations in terms of how long you can continue to provide financial support for your children. This can help ensure that you’re offering help and support in a financially smart way, while encouraging them to be more independent.

Many parents want to help as much as they can, but don’t let your desire to be supportive derail your own financial plans or retirement security.

And for those with elder parents living at home, having open and honest discussions about their needs can help you anticipate the level of support (financial and non-financial) you may have to provide as your parents get older.

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.