Key Takeaways:
- Pre-retirees often overlook key financial areas in retirement that can be surprising later, such as unexpected medical events, inflation, and home maintenance costs, which should be factored into an adaptable plan with a financial advisor.
- Medicare doesn’t cover everything. Retirees should consider supplementary coverage for expenses related to dental care, long-term care, and other out-of-pocket costs.
- Supporting adult children and maintaining a home and vehicle through retirement can quietly drain your finances, so it’s essential to budget for these expenses early.
- Retirees should consider inflation, rising costs, and taxes in their planning to help avoid surprises later.
When pre-retirees plan for expenses in retirement, they often focus on the obvious buckets: housing, healthcare, and essentials. It’s simple to overlook the hidden costs of retirement or unexpected events that can quickly derail your financial security. Many pre-retirees enter retirement thinking, “I’ll cross that bridge when I get to it,” rather than proactively allocating funds for an emergency or having a plan that adapts as necessary. Hidden or unplanned costs due to home repairs, a major illness, or the death of a spouse can be especially damaging, forcing you to tap into your retirement funds earlier than planned, scale back on spending dramatically, and disrupt your cash flow. So, how much does retirement cost in reality? We’ll cover six often-overlooked areas of retirement planning to help you prepare for the unexpected.
#1: Healthcare Expenses Medicare May Not Cover
It’s a common misconception that Medicare covers all medical expenses, which is why it’s important to familiarize yourself with the different parts of the program to understand what’s covered and what’s out of pocket. For example, Medicare doesn’t cover long-term care, and Original Medicare doesn’t cover hearing, vision, and most dental procedures, among other expenses,1 which may be surprising to retirees. Here’s what to consider:
- It may make sense to supplement your coverage with Medicare Part D, the prescription drug plan, Medigap, and/or Medicare Advantage, which can offer additional coverage and benefits not provided in Original Medicare (Parts A and B).
- Estimate annual expenses and allocate funds for healthcare in retirement. Be sure to include costs for premiums, co-pays, and other out-of-pocket expenses, as well as long-term needs. For example, one estimate for a 65-year-old retiree is that they will spend over $170,000 on healthcare and medical costs throughout retirement.2 Consider using a healthcare savings account (HSA) to capture additional tax benefits while having a fund exclusively for medical needs.
- Think about your long-term care needs. Even if you won’t need it, having insurance to cover an unexpected illness or injury can provide peace of mind if the need arises.
#2: Ongoing Home Maintenance Costs After the Mortgage Is Paid Off
According to one study, retirees stated home repairs and upgrades were among the top financial “shocks” in retirement.3 Even if your mortgage is paid off, it can create a sense of false security, as maintenance costs for your home — including small ongoing upkeep up to repairs for your roof, HVAC system, major appliances, and more — never stop. Here’s how you can plan ahead:
- A simple rule of thumb states to set aside 1% to 4% of your home’s value annually4 in an emergency fund or earmarked home repair bucket.
- Be sure to also budget for increases in property taxes and home insurance, consulting a tax professional for realistic estimates.
#3: Financial Support for Family Members
While your adult children may be out of the house, you could find yourself financially supporting them throughout your retirement. Many parents want to help their adult children navigate challenging times, cover rent and education costs, or support a grandchild. It’s important to understand how these costs can affect your retirement strategy and income over time. For context, a survey found that 47% of retirees reported supporting an adult child to their own financial detriment, sometimes amounting to as much as $227,000 in retirement savings.5
Here’s how you can prepare:
- Include expenses for your child as a line item in your budget. Setting a number and understanding that the bucket can comfortably support your child can help you set expectations with yourself and your child. You may also include supporting grandchildren or aging parents, as the need may arise later.
- Have honest conversations with your children that outline boundaries, expectations, and situations in which they can best support you. These conversations may be difficult at times, but ongoing talks can keep everyone on the same page, so your kids can also understand your financial needs and standing.
#4: Taxes on Your Retirement Income
Another common misconception among retirees is they won’t owe much in taxes, since they’re no longer working. However, all funds you’ve saved in taxable accounts, like a 401(k) or IRA, are considered taxable income once you start withdrawing them. Here’s how to plan ahead:
- Develop a tax-efficient withdrawal strategy with your financial advisor and CPA to help manage your taxes throughout your retirement, considering your taxable, tax-deferred, and tax-free savings vehicles.
- Required minimum distributions (RMDs) — IRS-mandated withdrawals from a traditional IRA — in retirement also add to your taxable income and could put you in a higher tax bracket depending on the balance of your IRA. Be sure to allocate funds for taxes or implement strategies to minimize your liability; for example, taking a qualified charitable distribution or withdrawing more during low-income years.
#5: Rising Transportation Expenses
Another often-overlooked expense in retirement is rising transportation costs. Even if you own your vehicle or no longer have a work commute, you will still be subject to maintenance, registration, gas, repairs, and insurance costs. Expenses for insurance premiums will only rise as you age, and maintenance and repairs may increase if you continue to invest in an older car. Additionally, you may travel more in retirement, adding to your overall transportation costs. Here’s what to consider:
- Work with a financial advisor to create a realistic transportation budget that accounts for ongoing expenses, yearly air travel, and the potential cost of buying a new car.
- Shop and compare insurance annually to ensure you’re getting the best coverage and rates for your needs and budget.
- Stay on top of maintenance to help extend the life of your car and guard against larger, more costly repairs.
- Consider downsizing to a more affordable vehicle or rideshare alternatives. Work with an advisor to compare the financial impact.
#6: Inflation Over 20–30 Years
Planning for rising inflation can be another surprise expense in retirement. A few dollars here and there every year may not feel significant; however, compounded over 20 to 30 years, the effects can be staggering on a fixed income, reducing your spending power and financial security. As retirees live longer, the risk of longevity increases, along with the costs of goods and services, and the likelihood of outliving their savings. Here’s what to consider with inflation:
- Essentials, such as gas, groceries, housing, and healthcare, typically increase faster than other expenses and should be considered in your budgeting.
- Run inflation-adjusted projections with a professional. Build flexibility into your finances by including an annual percentage increase in inflation of 2%, as estimated by the Federal Reserve,6 in your projections to stay on top of rising costs.
- Consider investing in inflation-protected investments, like Treasury Inflation-Protected Securities (TIPS), bonds, real estate, and tangible assets.
- Review your budget and inflation annually, and adjust your spending as necessary.
Ready to Plan for These Hidden Costs?
You’ve likely been a careful planner, yet preparing for the hidden retirement costs can still feel overwhelming. Thankfully, you don’t have to navigate retirement alone. Partnering with professionals, like our team of San Diego fee-only financial advisors, can help you plan for the expected and what-if scenarios that arise in retirement. Contact us to learn more about how we help pre-retirees and retirees plan for their next chapter, manage their risk, and keep more of what they’ve earned and saved.
Sources:
1 Medicare.gov. What’s not covered? https://www.medicare.gov/providers-services/original-medicare/not-covered.
2 Fidelity Investments. (2025, July 30). Fidelity Investments® Releases 2025 Retiree Health Care Cost Estimate, a Timely Reminder for All Generations to Begin Planning. Fidelity Newsroom. https://newsroom.fidelity.com/pressreleases/fidelity-investments–releases-2025-retiree-health-care-cost-estimate–a-timely-reminder-for-all-gen/s/3c62e988-12e2-4dc8-afb4-f44b06c6d52e.
3 Rappaport, A. (2017). Shocks and the Unexpected: An Important Factor in Retirement. Society of Actuaries. https://www.soa.org/globalassets/assets/files/resources/research-report/2017/shocks-inexpected-factor-retirement.pdf.
4 State Farm® Editorial Team. (2024, November 13). How much to budget for home maintenance. State Farm. https://www.statefarm.com/simple-insights/residence/how-to-budget-and-save-for-home-maintenance.
5 DebtWave. Nearly Half American Parents Footing the Bill for Adult Children, Even at the Detriment to Their Own Financial Health. https://debtwave.org/nearly-half-american-parents-footing-the-bill-for-adult-children/#:~:text=on%20adult%20responsibility?%E2%80%9D-,Nearly%20Half%20American%20Parents%20Footing%20the%20Bill%20for%20Adult%20Children,to%20live%20comfortably%20in%20retirement.
6 Board of Governors of the Federal Reserve System. (2025, August 22). Why does the Federal Reserve aim for inflation of 2 percent over the longer run? https://www.federalreserve.gov/faqs/economy_14400.htm.