10 Expenses That Don’t Go Away After You Retire
10 MIN READ
Published January 24, 2024 | Updated January 30, 2024
Retirement planning is not just about saving enough money in your 401(k) and IRA to cover your living expenses. It also involves carefully identifying expenses that you may have to pay when you retire. While most of your living expenses will be lower compared to your working years, others may rise.
In this guide, we’ll give examples of expenses that don’t go away after you retire and how you can manage them better.
10 Examples of Retirement Expenses
Here are some common retirement expense examples that you should include when you’re determining your budget for retirement.
An average retired couple aged 65 may need $315,000 saved to cover healthcare needs in retirement, while a single person aged 65 may need $157,500 in after-tax dollars. Healthcare is one of the biggest spending categories for retirees, and the bulk of this expense is due to health insurance.
And, for American citizens and U.S. lawful permanent residents (and LPR) age 65+ who meet the work requirements to qualify, this is the U.S. Medicare program. If you are a noncitizen or LPR who has not met the work requirements, you can still buy into Medicare if you’ve lived continuously in the United States for at least five (5) years.
It’s a good idea to have a good understanding of the type of costs you need to be prepared for and which ones are covered by Medicare Part A, B, C, and D. Your medical expenses may be lower when you reach retirement age if you’re in good health, but they can jump significantly as you reach your 80s.
Investing in preventative care, healthy eating, and exercise may also help you potentially keep your prescription drug and other healthcare costs lower.
2. Long-Term Care
You should also familiarize yourself with long-term care and the costs it may include, such as long-term care insurance premiums, deductibles, and out-of-pocket costs if you don’t have insurance or the financial resources to pay out-of-pocket for long-term medical support that Medicare doesn’t cover, the list of which is extensive.
Other than the expenses related to assisted living facilities and nursing homes, you may also have to account for home health aides, caregivers, and other in-home care services that you may require before transitioning to an assisted living or nursing home facility. We recommend using a long-term care cost calculator to estimate the current average and expected future costs of the various care levels in your area.
3. Normal Living Expenses
Even if you spend money wisely in retirement, your living expenses will continue to be a major spending category.
Your living expenses can include your housing costs, transportation, groceries/dining out, utilities, clothes, personal care, and other costs of things that you need for daily living. Many retirees are still paying off a mortgage, which can be a major expense. Repairs, maintenance, insurance, and property tax also add up.
Your transportation costs will likely shrink but won’t go away when you retire. If you don’t have the need for a car daily, using ride-sharing services or public transportation can help you save compared to car ownership.
Housing, which includes rent or mortgage principal and interest costs, homeowner’s or renter’s insurance, property tax, and annual maintenance, is arguably the largest expense in retirement. Some homeowners can see the costs drop over time as they downsize, pay off their mortgage, or move to more affordable locations.
However, if you plan to stay in your home for a larger chunk of retirement, you will likely see home maintenance costs increase as your home ages. This is because you’ll need to hire professionals for maintenance tasks like home cleaning, repairs, equipment replacements, and lawn mowing that you won’t be able to do yourself.
Your food expenses include groceries for cooking at home as well as dining out. Retiree households often spend as much as 25% of their monthly expenses on food.
Some strategies to save money on food include using coupons, sticking to a shopping list, taking advantage of senior citizen discounts, shopping in bulk, and applying for programs like SNAP.
If you dine out frequently, consider scaling it back. However, socializing with others over a meal may be an important way for many to build relationships, which is often needed for a happy retirement.
6. Water, Gas, Electricity
Your utility costs may go down when you retire as you downsize your home, which may require less air conditioning and heating. Another reason why utility costs may go down is because your children and/or other family members will likely not be living in your home. However, utility companies may increase their rates annually, which can add up.
If you live in a rural community or a car-dependent suburb, you may need to account for the costs of owning and maintaining a vehicle. When you take into account the car loan, fuel, insurance, depreciation, maintenance, and fees, the total cost of car ownership can be as high as $1,015 a month. Even if you no longer own a car, you’ll still need to pay to use public transport, rideshare services like Uber and Lyft, or taxis.
8. Travel and Leisure Expenses
Travel is an enjoyable aspect of retirement for many senior citizens. Your travel costs in retirement will depend on where you travel, how often you travel, where you stay, and whether you travel with someone else with whom you can share expenses. Typically, your travel and leisure expenses will be higher during early retirement while you’re in good health and taper down in the later years of retirement when things slow down a bit more.
9. Socializing Expenses
Entertainment and socializing are examples of expenses that don’t go away when you retire. With more free time during the day, you may spend more money trying new hobbies, dining out, and maintaining an active social life, which can get expensive.
Take advantage of senior discounts at movies, museums, and classes. Check to see if your community offers discounted or free entertainment options for senior citizens. You’ll also be able to find social activities at your local senior center.
10. Emergency Fund
Emergencies and unexpected expenses can come up at any time, even in retirement. This is one of the reasons why maintaining a healthy emergency fund is a good money management practice for retirees.
We recommend setting aside at least three months of living expenses for emergencies. Doing this will be easier if you have a budget and know what your living expenses are.
How To Prepare for Expenses That Won’t Go Away When You Retire
Once you have a clear picture of expenses that won’t go away after you retire, you can start estimating how much you’ll need to save.
Create a Budget for Retirement Expenses
Budgeting is even more crucial in retirement since you’ll be living most off of your savings. To make a budget, start by making a list of your variable and fixed expenses. Account for expenses we’ve listed in this guide, as it can be easy to underestimate how much you’ll need. There are many sample retirement budget templates available for free online.
Your retirement budget can also change based on when you plan to retire. For example, if you retire early, you won’t be able to get the maximum Social Security benefits, and you’ll need a larger nest egg. In addition, as you progress from your 60s and 70s into your 80s and 90s, many of your expenses (such as travel and automobile expenses) go down or even go away, while other expenses (like medical treatments and long-term care) will likely increase. Throughout retirement, your expenses evolve with you as your lifestyle changes over the years.
Knowing your anticipated retirement income, pensions, retirement account distributions, and expenses will allow you to make changes if needed beforehand so you can live more comfortably.
Seek Professional Financial Advice
Seek professional advice from licensed and experienced financial advisors, accountants, life insurance professionals, and estate planning attorneys, who can help you plan your finances as you age. While it may be expensive to hire these professionals, their advice can make a huge difference to your retirement planning.
It’s best to start consulting with these professionals well before you retire to ensure you’re on track with your financial goals.
Plan For Retirement Expenses Ahead of Time
Many Americans look forward to the free time and leisure of their retirement years, while for many others, it brings financial turmoil due to unexpected events and expenses. Lack of planning, financial missteps, and overspending can quickly deplete your retirement savings.
“When it comes to the success or failure of a long-term retirement plan, the process of planning for and managing expenses (aka, your savings “spend-down rate”) is absolutely critical,” explains Brad Reichert, financial expert and founder and managing director of Reichert Asset Management LLC.
“The level of your savings in pre-retirement is typically the second-most impactful factor, and the long-term average rate of return on invested retirement assets is the third,” Reichert adds.