People often think of retirement as a time of leisure: long mornings with coffee, traveling, spending time with family, or finally pursuing hobbies they've been putting off during their working years. The reality is that retirees often overlook the hidden costs associated with retirement – expenses that aren't reflected in glossy brochures and optimistic financial forecasts. Therefore, retirement plans can be derailed by unexpected healthcare bills or the need to move back in with adult children.
1. Adult children move home
It's a growing trend. Young adults move back in with their parents, a phenomenon sometimes called 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.
The costs: No matter how much they donate, having extra people in the house drives up the cost of groceries, utilities and other expenses. It will be more expensive if you help with rent, loan payments or childcare.
- When it comes to financial contributions, set boundaries and expectations.
- To avoid misunderstandings, consider a written “family agreement.”
- Don't forget to factor in the possibility of supporting adult children in your retirement budget.
2. Surprising healthcare costs
In retirement, healthcare expenses can be unpredictable and underestimated. Even with Medicare, retirees still must pay for premiums, deductibles, copays, prescription drugs, and services that Medicare does not cover (e.g., dental, vision, or long-term care).
- Take a look at Medicare Advantage plans or supplemental insurance.
- If you're eligible, open a health savings account before you retire.
- In 2024, the national average cost of adult day care in a community or assisted living facility was $2,167 per month, while the monthly cost of a private room in a nursing home was $10,646. For this reason, you should consider long-term care insurance to offset the costs of assisted living or nursing homes.
3. Home repairs and maintenance
Just because you're retiring doesn't mean your home will stop aging. Replacing a roof, HVAC system, plumbing repair or an unexpected repair can cost tens of thousands of dollars. According to a Bankrate study, homeowners incur an average of over $8,800 in hidden costs each year due to home maintenance alone.
The costs: Savings can quickly disappear when major repairs are needed, such as a roof replacement or foundation repair.
- Establish a special “home repair fund.”
- If your home is too large or too expensive to maintain, consider downsizing before retirement.
- Regular maintenance prevents larger and more costly problems in the future.
4. Inflation and lifestyle creep
It's easy to underestimate how much the cost of living will increase in retirement. However, even small luxuries can add up when inflation erodes fixed income.
The costs: Food, utilities and travel costs are likely to double over 20 to 30 years of retirement. This gap can be dangerous for you if you live on a fixed income.
- To beat inflation, consider continuing to invest in growth-oriented assets, including commodities, real estate investment trusts (REITs), and a 60/40 stock/bond portfolio.
- Review and adjust your retirement plan regularly.
- It's important to avoid “lifestyle creep,” which is an increasing bloat in your budget due to small, recurring indulgences.
5. Taxes in retirement
There's a common misconception that taxes are lower in retirement, but that's 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.
The costs: A poorly planned withdrawal strategy can cause your nest egg to shrink faster than expected and send you into a higher tax bracket.
- Develop a tax-efficient withdrawal strategy with the help of a financial planner.
- Before you retire, consider Roth conversions.
- Familiarize yourself with required minimum distributions, beginning at age 73.
6. Supporting aging parents
As you begin to retire, your parents may need financial or care support. The cost of assisted living, home health care or memory care can run into thousands per month. According to Pew Research, 55 percent of adult children believe they have a responsibility to provide financial support to an elderly parent in need. In comparison, 24 percent believe they have a lot of responsibility.
The costs: In situations where Medicaid or insurance does not adequately cover aging parents, adult children typically spend a portion of their own retirement funds to support them.
- Discuss your parents' financial and childcare plans openly with your parents.
- Find out about 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 times of increasing life expectancy, it is not uncommon for retirees to live to be 25 to 30 years old.
The costs: As decades pass, even a well-funded retirement can become unsustainable, especially when inflation, healthcare and the stock market are declining.
- Ensure a reliable stream of income with pensions or similar retirement options (if available).
- If you plan to retire early, you shouldn't make too much money out of your investments.
- Consider a 30-year retirement plan, even if you don't expect to live that long.
8. Transportation
Although transportation costs are to be expected, the amount may surprise you. For seniors ages 65 and older, it ranks second in terms of spending at $9,033. After all, you'll need to pay for fuel, insurance, maintenance, and monthly payments for a new car.
The costs: Even if your car is paid off, you still need to maintain it and get insurance. The costs increase even further if you plan to buy a new vehicle in retirement.
- Have a deductible for car replacement and repairs.
- Avoid excessive insurance costs by regularly comparing tariffs.
- Consider downsizing to a car or switching to public transportation 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 is also possible to deplete your savings by participating in local recreational activities such as golf or clubs.
- Set a realistic budget for hobbies and travel.
- Travel out of season and benefit from senior discounts.
- Invest in experiences that fit your budget.
10. Technology and security costs
Retirees often underestimate the cost of technology, including smartphones, streaming services and home security systems. There are also hidden costs associated with cybersecurity threats and scams targeting seniors. According to the FBI, cybercriminals are more likely to target older Americans because they may be more trusting, have better credit and may not know how to report cybercrimes if they become victims.
- Budget for technology upgrades and subscriptions.
- Keep up to date with common scams.
- Consider using a credit monitoring service or fraud protection service.
11. The emotional cost of financial stress
In addition to the dollars and cents, the hidden costs of retirement can also have a negative impact on mental health. If you worry about unexpected expenses, you are likely to experience stress, anxiety, and even conflict with your family members.
The costs: Stress-related health problems can not only increase medical bills but also impact quality of life.
- Prepare for unplanned expenses by building a “peace 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 moving an adult child home or a sudden medical bill.
Instead of stressing out, prepare. Create a flexible budget, have emergency funds on hand, and make realistic assumptions about healthcare, home maintenance, transportation, and family obligations. Despite retirement surprises, planning can prevent them from becoming crises.
The views and opinions expressed are those of the authors. They are for general information purposes only and should not be construed or interpreted as a recommendation or solicitation. NTD does not provide investment, tax, legal, financial planning, estate planning or other personal financial advice. NTD assumes no liability for the accuracy or timeliness of the information provided.