Understanding Hidden Expenses in Retirement

Retirement is the time to relax and enjoy the results of your lifetime of hard work, but it can also bring financial surprises that many people do not account for. Whether you’re approaching retirement or are a few decades away, you might have a general idea of your basic expenses, but have you accounted for hidden costs that can arise in retirement? Being aware of and planning for these expenses can help you plan more confidently for your retirement…hopefully allowing you to enjoy stress-free relaxation. To help you in your planning, we’ve compiled a list of common—yet often ignored—expenses that can occur in retirement.  

Housing Expenses

Although approximately half of all retirees have paid off their mortgage, equally as many have not. Those who haven’t know what their mortgage payments will look like, provided their interest rates stay the same, but what will your expenses be if your house is paid off?

The unfortunate reality is that even with no mortgage, housing costs don’t disappear. A significant chunk of your budget can still go to property taxes, maintenance, homeowners’ insurance, and utilities.

If you purchased your home on a 30-year mortgage and paid it off, chances are you’ll need to make some updates in your retirement. From new roofs to HVAC systems, it’s important to budget for these potential expenses. The cost of these repairs varies by location and need—a home with two separate AC units is going to be more costly to repair, for example—but insurance companies suggest saving between 1-4% of your home’s current value each year. This means that now is the time to start considering your household expenses in retirement. Most retirement plans will already factor this in, but if you are not working with a financial adviser, you may need to incorporate this on your own.

Even downsizing—which sounds like a perfect, practical, and financially savvy choice—is not without its hidden expenses. Between real estate commissions, potential renovations in your existing home and new home, and moving expenses, downsizing could cost you close to six figures.

Estate Planning and Legal Fees

Estate planning and creating a will are not easy things for everyone to think about, but they go a long way in helping you protect and distribute your assets according to your wishes. They can also be a costly element of retirement. For most people, creating an estate plan and accompanying will can involve attorneys, financial planners, tax advisers, and other professionals.

Like most expenses, the average cost of drafting a will varies by location, but a conservative estimate for a married couple is a little over a thousand dollars. The cost will increase if you plan to establish a Testamentary trust or if you have complex financial or personal circumstances. As nearly every estate planning attorney will tell you, the sooner you put these plans in place, the better. While we all hope to live long and healthy lives, there are no guarantees. Planning for your future now helps you protect your own wishes for your assets.

In addition to the cost of establishing these documents, you will likely pay annual fees to the professionals you employ for your own peace of mind. If you work with financial planners or tax advisers, you will likely pay a negotiated fee for their services. These professionals provide valuable services and advice, but that does come at a cost.  

Healthcare Costs

One of the most significant expenses retirees face in retirement is the cost of healthcare. Even with Medicare, there are deductibles, copays, procedures and services that insurance does not cover, and other out-of-pocket costs.

The cost of prescription medications can add up quickly. In 2024, out-of-pocket costs for prescription drugs were capped for most Medicare participants at $2,000 per year. Even with the cap, the out-of-pocket costs add up year over year.

Many retirees also underestimate the cost of long-term care. The average cost of a private room in a nursing home is $120,304. A semiprivate room is not much more economical; it averages $107,146 per year.  

For those who don’t plan for these expenses, healthcare in retirement can become a devastating financial strain. However, with proper budgeting, your financial plan will already reflect these possible expenses, and you can enter retirement confidently.

Particularly with the various healthcare plans available, it can be helpful to consult with experts to determine if you are maximizing the potential savings you could attain. Services like ClearMatch, offered through some wealth management firms like GDS, can help retirees and prospective retirees navigate the changing landscape of insurance with confidence.

Retire with Confidence

If you are creating your own financial plan, handling your own retirement accounts, and projecting your own expenses, consider the costs outlined above. Factor them into your plan and assess your lifestyle. Is there anything else you need to ensure you are financially prepared for in retirement? If so, add that to your budget.

Working with a CERTIFIED FINANCIAL PLANNER™ allows you to lighten some of your mental load. With decades of experience creating financial plans and retirements, retirement planners like our talented financial advisers at GDS Wealth Management can help you plan for expenses you may not have yet considered.

If you have any questions about the expenses that could arise in your retirement, contact one of our skilled financial planners today. Call (469) 212-8072 or visit www.gdswealth.com. We are here to help you navigate the complexities of your retirement.