The Real Cost of Retirement: 4 Most Underbudgeted Retirement Expenses - 401k Maneuver

The Real Cost of Retirement: 4 Most Underbudgeted Retirement Expenses

Planning for the type of retirement lifestyle you want is important so you don’t retire and realize you’ve underbudgeted retirement expenses. 

Depending on the retirement lifestyle you want and can afford, some expenses will go down, while others may go up. 

For example, if you downsize or move to a less expensive city, your housing costs should decrease. 

But what about those expenses that may go up–such as healthcare? Keep reading below for the 4 most underbudgeted retirement expenses.


#1 Medical Expenses

underbudgeted retirement expense
Healthcare is expected to be one of the largest retirement expenses–with an estimated $285,000 (after tax) in medical expenses needed in retirement for the average couple over 65 in 2019, according to Fidelity Retiree Health Care Cost Estimate.¹

This number does not include long-term care costs. (More on that below.) 

Factors contributing to soaring costs include…

  • People are living longer.
  • Healthcare inflation. 
  • Average retirement is 62, while Medicare eligibility is 65. 

The Fidelity report broke it down further: with males needing roughly $133,000 and females $147,000 to pay for healthcare in retirement. 

Remember, the report is for retirees in 2019–not in a decade or two. This number is likely to increase in the coming years. 

However, an HSA Bank survey found that 67% of people age 65 and older believe they need less than $100,000 for healthcare

The gap between what retirees will actually need and what they think they will need clearly shows how many people underestimate healthcare expenses in retirement. 

Of course, the exact amount you’ll need depends on…

  • How healthy you are.
  • When and where you retire.
  • How long you live.
  • Your tax rates in retirement. 
  • How you pay for medical expenses.

With many of the above factors unknown, it’s important to overbudget for healthcare. 

#2 Medicare

underbudgeted retirement expense

The most basic Medicare plan is free for most people 65 and over, but it does not cover certain out-of-pocket costs such as deductibles, copayments, and supplemental insurance often needed. 

There are four parts to Medicare: A, B, C, and D, and each covers different things. 

You can enroll in one or more parts, and usually have to pay a monthly premium based on income.  

Medicare Part A and B are the most commonly selected, as these parts cover many services needed. 

However, unless you have Part D, Medicare does not cover medication. 

Most dental and vision aren’t covered under Medicare–neither are hearing aids. 

Because Medicare doesn’t cover everything, many retirees end up paying for supplemental health insurance through Medicare Advantage, offered through private insurers. 

Medicare Advantage falls under Part C, and people are required to be enrolled in Parts A and Parts B to qualify for Part C.

In 2019, the standard monthly premium for Part B is $135.50 per month. 

The base monthly premium for Part D is $33.19. However, costs vary depending on what pharmacy you go to, your medications, and the plan you select.³

Part C premiums are set by private insurance companies and, as a result, vary. 

Do you see how quickly all these premiums, out-of-pocket costs, and deductibles can add up

Do you see how easy it is for many people to underbudget retirement expenses in this area? 

One final note on Medicare: It can be complex and difficult to understand. If you’re nearing 65, it’s important you do your research and understand what options are right for you. 

#3 Long-Term Care

underbudgeted retirement expense

Another underbudgeted retirement expense is long-term care. 

As mentioned above, it is not covered under Medicare. 

Genworth, a long-term care insurer, recently published the Cost of Care Survey,  conducted by CareScout®. 

The study, which ran from 2004-2018, revealed that “long term care costs for nursing homes, assisted living facilities, and in-home care are higher than most people have planned for and only continue to rise.”⁴

From 2004 to 2018, the cost for facility and in-home care services rose on average from 1.5% to 3.8% per year

Specifically, the annual cost for a private room in a nursing home for 365 days of care in 2018 was $100,375 compared to $65,185 in 2004.

Assisted living costs rose 67% from 2004 to 2018.

And the national in-home health aide costs are now at $22 per hour. 

While actual costs vary from state to state, and how long you live is an important factor, one thing is clear: long-term care costs are rising and are not expected to stop anytime soon

In fact, the survey concluded: “At this rate, some care costs are outpacing the U.S. inflation rate of 2.1% by almost double.”

If you fail to properly plan and save for long-term care, you run the risk of your adult children having to financially support you. 

#4 Household Expenses

underbudgeted retirement expense

Your housing costs in retirement may decrease if you downsize or move to a less expensive part of the country or out of the country. 

In fact, according to a Fidelity report, the average housing costs drop for retirees.⁶

But you’ll still have household expenses. 

In retirement, you will be living on less money. That’s a given.

Yet, another one of the most underbudgeted retirement expenses is household costs. 

If you think you are going to be able to afford the same household expenses in retirement as you do while you have a salary, think again. 

What you normally could cover when you had a salary can become a big expense in retirement if you haven’t saved enough

What if you accidentally run into the garage door (hey, it happens!). Or the air conditioner goes out and you need a new unit, or the roof needs to be replaced. 

For many who are retired and on a fixed income, charging these types of repairs isn’t always an option because there’s often no way to pay off the balance without incurring a ton of interest. 

Whether you live in an apartment, condo, or smaller home, you need to save for household repairs that pop up. 
Make the best decision for your financial future. 
The type of advice you receive about your finances may be impacted by the type of advisor you resource for advice. Download our no-cost guide on how to understand The Different Types of Licenses Financial Advisors Have and What They Mean to You.
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