Five typical and essential retirement expenses

No matter your age, you probably have a plan for how you want to spend your retirement. Whether that includes traveling, spending more time with the grandkids, or picking up some new hobbies, knowing how much money you’ll need can go a long way toward making your retirement more worry-free. While estimating your discretionary spending is helpful, it’s often the unexpected but necessary expenses that can derail your plans. 

Housing costs

Retirement often involves a reassessment of your living arrangements. Even if you’ve paid off the mortgage on your home—property taxes, utilities, and maintenance costs will still have to be factored into your budget. According to the U.S. Bureau of Labor Statistics, housing constitutes a significant portion of retirees' expenditures, emphasizing the importance of planning for these ongoing expenses.

Many people often choose to downsize for this reason. While saving money on the bills is one benefit, the extra income from selling your home can also be a significant boon to your nest egg as well. Other common strategies include exploring retirement communities or relocating to a more affordable area. While both options can help you save money on housing expenses, you should still consider the other costs they might bring with them. If you move to another state, will you be spending more money on travel to visit your family? What are the fees associated with living in the retirement community? Before you put the “For Sale” sign up, plan ahead and do the math so you can make an informed decision when the time comes.

Healthcare

As you age, you can expect your healthcare expenses to rise. According to Investopedia, a typical 65-year-old retired couple in 2023 faced an estimated $315,000 in subsequent healthcare costs.1 This doesn’t include the additional costs of over-the-counter medications, dental care, or long-term care. Medicare, the federal health insurance program for individuals aged 65 and older, can help cover medical costs, but it doesn't cover everything. You may need supplemental insurance, and out-of-pocket expenses like deductibles and copayments can accumulate. 

Planning for potential long-term care needs is also crucial, as these costs can be substantial. Creating a healthcare fund and exploring long-term care insurance options can help provide financial security in the face of unforeseen medical expenses.

Related: Long-term care insurance to help keep you at home

Kids and grandkids

While it's natural to want to help your children in times of financial need, establishing clear boundaries and setting realistic expectations is crucial. As a retiree, it can be difficult to make that money back and you could be putting your own financial security at risk if you aren’t careful. Consider discussing financial assistance early on and incorporating it into your retirement plan. Striking a balance between generosity and financial prudence ensures your financial stability during retirement.

Related: How to talk about managing family finances

Similarly, when it comes to your grandchildren, it may be useful to set aside funds specifically for them, so you don’t accidentally dip into funds you need for necessary expenses. 

Many retirees often want to leave a legacy behind for their children, grandchildren, or even a charity they feel passionately about. No matter the case, life insurance can be a great help toward funding your gift. 

If you want your legacy to go toward college savings for your grandchildren, a 529 plan and supplemental funding from a whole life insurance policy may be of more value than traditional savings accounts. A 529 plan offers a number of financial benefits, including generous contribution limits, favorable state tax treatment for state residents, tax deferral of earnings, and tax-free distribution when used for qualifying expenses.

While a legacy can be a great gift to your loved ones, there are various tax laws to consider. By speaking to a financial professional, you can help ensure that more of your gift ends up where you want it to go. 

Travel and entertainment

Retirement is a time to enjoy life, and travel and entertainment are often priorities. Planning for these activities in advance and budgeting for travel and entertainment expenses ensures that these experiences enhance rather than burden your retirement.

Whether you want to hike the Appalachian trail, go on cruises, or even just take weekend trips upstate with the grandkids, having an entertainment budget (and sticking to it) is vital to ensuring you don’t spend more than you can afford. Additionally, by budgeting for your travel and entertainment expenses early on, you’ll potentially have extra funds to dip into should a more important financial emergency arise.

Taxes

The amount of taxes you owe when you’re retired depends not only on your income, but also on your type of retirement plan and your timing of withdrawals. Different sources of income, such as Social Security, pensions, and withdrawals from retirement accounts, are taxed differently. Leveraging tax-advantaged accounts and diversifying income sources can help optimize your tax strategy in retirement. 

Understanding the tax landscape in retirement is crucial for effective financial planning, but not everyone can be a tax expert. That’s why it’s important to ask for help. Consulting with a financial professional can provide insights into optimizing tax strategies, potentially minimizing liabilities, and maximizing your income when you need it most.

Related: Retirement tax strategies

Quick tips: Best ways to prepare for retirement

1. Start Early: The earlier you begin saving for retirement, the more time your investments have to grow.
2. Diversify Investments: A well-diversified portfolio helps mitigate risks and provides a buffer against market fluctuations.
3. Emergency Fund: Maintain an emergency fund to cover unexpected expenses, reducing the strain on your retirement accounts.
4. Consult a Financial Professional: Seeking professional advice ensures that your retirement plan aligns with your goals and risk tolerance.
5. Regularly Review and Adjust: Life circumstances change, so regularly review and adjust your retirement plan to accommodate new priorities and realities.

 By understanding and proactively managing your essential retirement expenses, you can embark on your post-career years with confidence and financial stability. Strategic planning, prudent decision-making, and having a financial professional as your guide is key to providing yourself with a fulfilling and worry-free retirement journey.

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¹Rebecca Lake, “How to Plan for Medical Expenses in Retirement,” Investopedia, October 23, 2023. https://www.investopedia.com/retirement/how-plan-medical-expenses-retirement/