5 Retirement Costs to Plan For 

People are waiting longer to retire. According to Gallup, the average expected retirement age among non-retirees is now 66 compared to 60 in 1995, and the percentage of adults aged 55 to 74 who are retired is falling.

Part of the reason for this is that many underestimate or fail to plan properly for common retirement costs and are forced to keep working longer than expected.

So to be sure you can retire when you want to, here are the seven biggest retirement costs to plan for:

1. Housing

Housing is the biggest expense for retirees and non-retirees alike. It includes things like mortgage payments, home insurance, HOA fees, and regular maintenance and repair costs. 

Of course, your retirement housing costs will vary widely based on where you choose to settle. For example, a home in a coastal market may cost much more than one in a rural area.

Don’t forget hidden housing costs, such as unexpected repairs, either. Even though real estate tends to appreciate over time, the actual structure does not. And by the time you are in your retirement years, your home may require significant repair work.

You may also need to renovate your home to accommodate your physical needs as you get older. For example, if you lose the ability to climb stairs, you might want to install a chair lift. Other updates to consider include walk-in tubs with extra grip support, security and medical alert systems, and ramps for better wheelchair access.

As a rule of thumb, you should budget 1% of your home’s value for annual repairs and maintenance.

2. Healthcare

Healthcare costs in retirement include health insurance, prescription medicines, and other needed medical services and supplies. 

The total cost will vary based on your genetics, lifestyle, and any injuries or illnesses you’ve experienced. But generally, healthcare costs go up with age, not down.

After you reach the age of 65, Medicare can cover some of these costs, but the coverage is limited. It can cover hospital stays, doctor visits, and medical supplies up to a certain threshold. 

That’s why you may consider getting a Medicare Advantage or Medigap plan to cover extra things like dental, hearing, and vision care. Medicare Advantage plans usually have lower premiums but more out-of-pocket expenses, while Medigap plans usually have higher premiums but fewer out-of-pocket expenses.

Another way to help pay for healthcare in retirement is to start contributing to a health savings account (HSA). An HSA lets you save pre-tax money to pay for qualified medical expenses. After you turn 65, you can withdraw it tax-free to use toward anything. Keep in mind that to be eligible for an HSA, you must have a high-deductible health insurance plan. 

3. Long-term care

Many people fail to plan for long-term care, which isn’t covered by regular health insurance. Long-term care is any assistance with daily activities (e.g., dressing, eating, bathing, and going to the bathroom) over an extended period of time, and 70% of adults aged 65 and older will require some form of it in their lifetime. 

If you don’t want to rely on (or burden) family members to take care of you in your old age, you have two options: pay for professional long-term care services out of pocket or get long-term care insurance.

Paying out of pocket may be attractive to some who are wealthy, but it carries a lot of risks since you never know how much long-term care you’ll need. 

Getting long-term insurance is the more secure option. It helps ensure you don’t have to tap into your life savings and risk not being able to leave an inheritance to your posterity. Experts recommend getting long-term care insurance in your 50s or 60s to lock in a more affordable rate (assuming you’re still healthy and insurable). If you wait too long, long-term insurance rates go way up!

That said if you must rely on family for long-term care, use FreedomCare to ensure your family member gets paid for taking care of you. 

4. Transportation and travel

Transportation and travel costs can add up fast in retirement, especially if you plan on vacationing a lot.

But it’s not just plane tickets and hotel stays. You must also pay to own a vehicle, which includes paying for gas, insurance, maintenance, and repairs. 

If you’ve been driving your car for a while now, you may also need to replace it at some point. Or you might want to equip it with the latest safety features, such as adaptive cruise control and automatic emergency braking. 

All of these transportation and travel costs must be taken into account as you head into retirement.

5. Unexpected expenses

Lastly, you never know what curveballs life will throw at you when you hit retirement. 

For example, you may have a child in crisis asking for financial help, and it can be hard not to help a child in need. Just be clear about what the terms of your financial help will be (e.g., are you offering a gift or a loan?).

Another unexpected life event could be the death of a spouse. Though nobody wants this to happen to them, it could. To offset the financial setback this would cause, you may want to look into the following:

  • Life insurance. It can help replace any loss of income (or, in some cases, child care). Try to get a policy that will support the lifestyle you (or your spouse) want.
  • Pensions. If you are eligible for a pension from your employer, research if there are any survivorship benefits that could be passed on to a spouse if one spouse dies.
  • Social Security. A surviving spouse is eligible to collect their deceased spouse’s Social Security benefits at a reduced rate. The longer you (and they) wait to collect them, the higher the payout will be. Your benefit increases by 8% every year that you wait past full retirement age.

Adding it all up

Retirement comes with many costs. As a rule of thumb, you should expect to spend 55% to 80% of your current income annually in retirement. 

To ensure you have enough money when the day comes, start contributing to a retirement account, whether that’s an individual retirement account (IRA) or a 401(k) sponsored by your employer. For advice specific to your situation, speak with a financial planner.

The sooner you prepare, the better off you’ll be.