1. Adult Children Moving Back Home
It’s a growing trend. Young adults are moving back in with their parents, a phenomenon sometimes referred to as the “boomerang effect.” Specifically, according to the U.S. Census Bureau, about one in three U.S. adults ages 18 to 34 live with their parents.
- As far as financial contributions are concerned, set boundaries and expectations.
- To avoid misunderstandings, consider a written “family agreement.”
- Don’t forget to include the possibility of supporting adult children in your retirement budget.
2. Surprise Healthcare Costs
In retirement, healthcare expenses can be unpredictable and underestimated. Even with Medicare, retirees still need to pay for premiums, deductibles, co-pays, prescription drugs, and services that Medicare doesn’t cover (such as dental, vision, or long-term care).
- Take a look at Medicare Advantage plans or supplemental insurance.
- If eligible, open a Health Savings Account before retiring.
- As of 2024, the national median cost of adult day health care at a community or assisted living facility was $2,167 per month, while the monthly cost of a private room at a nursing home was $10,646. For this reason, you might want to consider long-term care insurance to offset the cost of assisted living or nursing homes.
3. Home Repairs and Maintenance
Just because you retire doesn’t mean your home stops aging. A roof replacement, HVAC system, plumbing repair, or unexpected repair can cost tens of thousands of dollars. As a matter of fact, homeowners average over $8,800 in hidden costs every year due to home maintenance alone, according to a Bankrate study.
- Establish a dedicated “home repair fund.”
- If your home is too large or expensive to maintain, you should downsize before retirement.
- Regular maintenance will prevent larger, more costly problems in the future.
4. Inflation and Lifestyle Creep
It’s easy to underestimate how much living expenses will rise during retirement. However, even small luxuries can add up if inflation erodes fixed incomes.
- To outpace inflation, consider maintaining investments in growth-oriented assets, including commodities, real estate investment trusts (REITs), and a 60/40 stock/bond portfolio.
- Maintain a regular review and adjustment of your retirement spending plan.
- It’s crucial to avoid lifestyle creep, which is the incremental inflation of your budget due to small, recurring indulgences.
5. Taxes in Retirement
There is a common misconception that taxes will be lower when you retire, but that is not always the case. In addition to 401(k) and traditional IRA withdrawals, Social Security benefits (up to 85 percent) may also be taxable depending on other sources of income.
- Develop a tax-efficient withdrawal strategy with the help of a financial planner.
- Before retiring, consider Roth conversions.
- Become familiar with Required Minimum Distributions that start at age 73.
6. Supporting Aging Parents
As you ease into retirement, your parents may require financial or caregiving assistance. The cost of assisted living, home health aides, or memory care can range from thousands per month. According to Pew Research, 55 percent of adult children believe they have a responsibility to provide financial assistance to an elderly parent in need. In comparison, 24 percent believe they have a great deal of responsibility.
- Discuss your parents’ financial and care plans with them openly.
- Get to know long-term care options and government programs as early as possible.
- Caregiving responsibilities should be considered when planning your retirement.
7. Longevity Risk: Outliving Your Money
Longevity is a gift, but it also increases the risk of running out of money. In an era of rising life expectancy, it isn’t unusual for retirees to live for 25–30 years.
- Ensure a reliable flow of income with pensions or similar retirement options (if available).
- If you are planning to retire early, don’t take too much money out of your investments.
- Consider a 30-year retirement plan, even if you don’t anticipate living that long.
8. Transportation
Although transportation costs are expected, the amount may surprise you. For seniors aged 65 and older, it ranks second in terms of expenditures at $9,033. After all, you’ve got to pay for fuel, insurance, maintenance, and monthly payments for a new car.
- For car replacements and repairs, keep a sinking fund.
- Avoid overpaying for insurance by comparing plans regularly.
- Consider downsizing to one car or switching to public transit or ridesharing.
9. Travel and Leisure (More Expensive Than Expected)
Airfares, hotels, insurance, and rising fuel prices add up quickly for retirees who dream of traveling. It’s also possible to drain your savings by participating in local leisure activities, such as golf or clubs.
- For hobbies and travel, set a realistic budget.
- Travel off-season and take advantage of senior discounts.
- Invest in experiences that fit within your budget.
10. Technology and Security Costs
Retirees often underestimate the costs of technology, including smartphones, streaming services, and home security systems. There are also hidden costs associated with cybersecurity threats and scams targeted at seniors. According to the FBI, cybercriminals are more likely to target older Americans because they may be more trusting, have better credit, and don’t know how to report cybercrime if they fall victim.
- Budget for technology upgrades and subscriptions.
- Keep yourself informed about common scams.
- Consider using a credit monitoring service or a fraud protection service.
11. The Emotional Cost of Financial Stress
In addition to dollars and cents, retirement’s hidden costs can negatively impact mental health. If you’re worried about unexpected expenses, you’re likely to experience stress, anxiety, and even conflict with your family members.
- Prepare for unplanned expenses by building a “peace of mind fund.”
- Stay socially connected and practice stress management.
- To feel more comfortable with your plan, work with professionals.
Final Thoughts: Planning for the Unexpected
Realistically, retirement isn’t just about saving for everyday expenses. It’s about preparing for what you can’t predict. No matter how well you plan, unexpected costs can derail even the best-laid plans—whether it’s an adult child moving back home or a sudden medical bill.
