In this article, we will explore what expenses you can expect in retirement and how to financially prepare for this next chapter of life. The goal is to better prepare for the financial realities of retirement and ensure that you can enjoy this new phase of life with greater peace of mind.
Expenses in Retirement: What to Expect
Housing
Housing remains one of the largest expenses for retirees. According to Fidelity, housing costs can account for up to 42 percent of a retiree’s budget. This includes mortgage or rent payments, property taxes, and maintenance and repairs.
These expenses can strain your retirement budget if you haven’t set aside a contingency fund for such events. Financial experts recommend maintaining an emergency fund specifically for home repairs and modifications to mitigate these unexpected costs.
Many retirees opt to downsize or relocate to more affordable areas to manage these costs better.
The ongoing responsibility of maintenance and repairs can be unpredictable. According to a report by the Society of Actuaries, major home repairs and upgrades were the most common shock that retirees say they had to face.
Major repairs such as a roof replacement, plumbing issues, or HVAC system failures can be costly and often arise without warning.
According to an analysis by Zillow and Thumbtack, when you add in all of the “hidden costs” that come with owning a home, the homeowners spend $14,000 per year on average. This includes costs such as mortgage payments, property taxes, insurance, HOA fees (where applicable), utilities, and home maintenance.
When it comes to maintenance and upkeep, the average cost annually is $6,413, according to the same analysis.
Below is a breakdown of the average costs of some of the most common repairs:
| Common Home Repairs | Average Cost |
|---|---|
| Roof Repairs | $150 to $8,000 |
| Roof Replacement | $5,855 to $13,073 |
| Plumbing Repairs | $175 to $450 |
| Exterior Paint | $3,000 |
| Water Heater Replacement | $1,300 |
| Foundation Repairs | $5,018 |
| HVAC Repairs | $130 to $2,000 |
The Society of Actuaries recommends that retirees “Evaluate whether current housing is affordable based on anticipated finances.”
If you find that your housing expenses are eating up too much of your budget or you don’t have enough to cover needed repairs and upgrades, one option to consider is a reverse mortgage loan. A reverse mortgage will eliminate your monthly mortgage payment and allow you to access your home equity in the form of cash.
Sources:
https://www.thisoldhouse.com/roofing/reviews/cost-of-roof-repair
https://www.angi.com/articles/how-much-does-roof-replacement-cost.htm
https://www.angi.com/articles/how-much-will-plumbing-repair-cost.htm
https://www.forbes.com/home-improvement/painting/painting-house-exterior-cost
https://www.angi.com/articles/how-much-does-foundation-repair-cost.htm
https://www.angi.com/articles/how-much-does-water-heater-installation-cost.htm
https://www.angi.com/articles/how-much-hvac-repair-cost.htm
Medical Expenses
Healthcare is often the most significant and unpredictable expense in retirement.
A 65-year-old couple will need approximately $315,000 to cover healthcare costs throughout their retirement, according to Fidelity’s 2023 Retiree Health Care Cost Estimate. For an individual, the estimated cost is $157,500.
Fidelity’s estimate is based on an individual enrolled in traditional Medicare, which helps pay for costs such as doctor appointments, hospital stays, and other services. It also assumed the individual is enrolled in a Medicare prescription drug plan, also known as Medicare Part D.
Fidelity says that means that the expected costs are “above and beyond what Medicare covers.”
T. Rowe Price says that while the average cost for medical expenses throughout retirement sounds like a big number, “half of retirees with traditional Medicare (Parts A and B), a prescription drug plan (Part D), and Medigap will spend less than $900 per year on out‑of‑pocket expenses.”
According to its findings, “Only 1 in 10 will likely spend more than $4,200 per year on out‑of‑pocket expenses. Also, it’s not necessarily true that someone spending $4,200 in out‑of‑pocket expenses this year will keep doing so for the rest of his or her life.”
If you require in-home care, the average cost nationwide ranges from $1,950 per month to $5,720 depending on how many hours are required, according to A Place for Mom.
To offset healthcare costs in retirement, Fidelity recommends that retirees consider a health savings account (HSA) because of the tax advantages it offers.
Dental Costs
Even though dental costs are a medical expense, it deserves its own section because major dental expenses are the second most common financial shock that retirees report, right after major home repairs, according to the Society of Actuaries report on Shocks and the Unexpected: An Important Factor in Retirement.
According to the report, 24 percent of retirees reported major dental expenses as one of the financial shocks they experienced.
“Dental expenses are frequently unexpected and uninsured,” the Society of Actuaries explains.
According to the U.S. Centers for Medicare and Medicaid Services (CMS), “In most cases, Medicare doesn’t cover dental services like routine cleanings, fillings, tooth extractions, or items like dentures.”
The exception is when dental treatment is required as part of another medical procedure, such as if an oral exam is required before a heart valve replacement, CMS explains.
However, some Medicare Advantage plans, also known as Medicare Part C, will include a dental plan, but Medicare Supplement plans do not.
If your plan does not include dental coverage, it can be purchased separately. The plans vary from those that include basic dental care to coverage for major care. Most health insurance companies that offer Medicare plans, also offer dental plans.
Daily Living Costs
Everyday expenses such as groceries, dining out, utilities, and transportation continue to be a part of your budget in retirement.
The cost of food can vary widely. For instance, a comfortable retirement budget in Florida includes about $130 per week for groceries and $80 for dining out, according to Explore55Plus.
While some costs may decrease, like commuting expenses, others might remain stable or even increase depending on your lifestyle choices.
While inflation is starting to moderate, prices for everyday goods are still at an all-time high. For example, food prices have increased by more than 25 percent since the last election in November 2020, according to Yahoo. And gas prices have already risen by 14 percent in 2024, ABC News is reporting.
These rising prices only serve to put additional pressure on the wallets of retirees, which can be tough, especially for those living on a fixed income.
Keeping a close eye on these variable expenses and adjusting your budget accordingly can help maintain financial stability.
If you’re a homeowner, tapping into your equity with a reverse mortgage in the form of monthly installments may help add a buffer to your monthly budget.
Entertainment and Leisure
Retirement is a time to enjoy hobbies, travel, and social activities. Allocating a portion of your budget to entertainment and leisure can enhance your quality of life.
Whether it’s traveling the world, pursuing new hobbies, or spending time with family and friends, planning for these activities ensures you can enjoy your retirement to the fullest.
For a more active lifestyle, increasing your retirement budget by about 6 percent is recommended to cover these costs, according to Fidelity.
If your budget doesn’t allow for such costs, choose activities that won’t take as much of a financial toll such as volunteering, spending time with family, taking advantage of local events, joining a book club, or gardening.
Be mindful of balancing these discretionary expenses with your overall financial plan to avoid overspending.
Family Support
Children may still need help long after they leave the home, and retirees might find themselves in a position where they need to provide financial support to family members, which can be unexpected and burdensome.
This can include helping adult children with major expenses such as education costs, housing, or even supporting grandchildren.
According to a Bankrate survey, 68 percent of parents with adult children step in with financial help when their children are in a pinch. To do so, the parents have had to dip into their retirement savings, emergency savings, and put off paying off debt or a specific financial goal.
These family obligations can arise unexpectedly and require careful financial planning to ensure they don’t jeopardize your financial security.
Financial Emergencies
Financial emergencies, such as identity theft, significant investment losses, or the loss of a second income due to the passing of a spouse can also occur during retirement. These situations often require immediate financial resources and can disrupt your planned budget.
Ensuring you have adequate insurance coverage and emergency savings in place can help mitigate the impact of these emergencies.
It’s also wise to work with a financial advisor to develop a strategy for dealing with such contingencies.
How to Prepare for Expenses in Retirement
Planning for retirement is crucial to ensure a comfortable and financially secure future. With proper preparation, you can manage your expenses effectively and enjoy your golden years without financial stress. Here are some steps you can take to prepare for retirement expenses.
Estimate Your Retirement Expenses
Start by calculating your current monthly and annual expenses. Include housing, utilities, groceries, transportation, healthcare, insurance, entertainment, and any other regular costs. Use this as a baseline to project your future expenses.
Consider how your expenses will change in retirement. Some costs may decrease, like commuting and work-related expenses, while others, such as healthcare and leisure activities, may increase. Factor in inflation and potential lifestyle changes.
Determine Your Income Sources
Estimate your Social Security benefits. You can use the Social Security Administration’s online tools to get an accurate estimate based on your earnings record and retirement age.
Calculate the expected income from your retirement accounts, such as 401(k)s, IRAs, and pensions. Consider factors like withdrawal rates, required minimum distributions (RMDs), and tax implications.
Include any other potential income sources, such as rental properties, part-time work, or investments.
Create a Retirement Budget
Create a detailed retirement budget by comparing your projected expenses with your estimated income. Identify any gaps and plan how to address them.
Categorize your expenses into needs (essential costs like housing and healthcare) and wants (discretionary spending like travel and hobbies). Prioritize your spending to ensure essentials are covered first.
Here are some free retirement budgeting tools that can help you get started:
Build an Emergency Fund
Establish an emergency fund with 6-12 months’ worth of living expenses to cover unexpected costs. This fund provides a financial cushion and prevents you from dipping into retirement savings.
Ensure the emergency fund is easily accessible, ideally in a high-yield savings account or a money market account.
Another option if you don’t have the means to establish an emergency fund is to tap into your home equity through a reverse mortgage. A reverse mortgage loan gives borrowers several options for accessing their equity.
One of those options is a line of credit, which works a lot like a home equity line of credit (HELOC), in which borrowers can access the funds on an as-needed basis. One benefit of the reverse mortgage credit line is that unused funds can grow.
Plan for Healthcare Costs
Familiarize yourself with Medicare options, including Parts A, B, C, and D, and supplemental plans (Medigap).
“Those who purchased a Medicare supplement in addition to Medicare usually had their health care bills well covered so health care costs were usually not an issue,” according to the Society of Actuaries.
Estimate your healthcare costs based on premiums, copays, and out-of-pocket expenses.
In addition, you may want to consider purchasing long-term care insurance to cover potential expenses for assisted living, nursing homes, or in-home care.
Improve Monthly Cash Flow
Look for ways to improve your monthly cash flow by prioritizing paying off high-interest debt, such as credit cards and personal loans, before retiring. Reducing debt lowers your monthly expenses and increases your financial security.
If you have a mortgage, explore options such as refinancing to lower your payments or paying off the mortgage if financially feasible.
If you are heading into retirement with high-interest credit card debt and a mortgage, it may be worth exploring how a reverse mortgage loan, available only to homeowners 62 or older, may help.
When you take out a reverse mortgage, the first thing it does is pay off your current traditional mortgage and the monthly mortgage payments that go with it. Of course, borrowers are still responsible for paying the property taxes, homeowners’ insurance, and HOA fees, if applicable.
For the remaining equity, you have the option to receive your funds as a lump sum, monthly payments, a line of credit, or a combination of those methods. Choose the one that will work best for your situation.
To learn more about how a reverse mortgage may help, check out our Complete Guide to Reverse Mortgages.
Bottom Line
While it’s impossible to predict every expense that might arise during retirement, being aware of potential expected costs and preparing for them can help ensure financial confidence going into retirement.
Establishing an emergency fund and maintaining flexibility in your budget are crucial steps in managing these surprises.
By planning ahead and seeking professional advice, you can navigate these challenges and enjoy a more secure and stress-free retirement.
Reverse mortgage borrower must occupy home as primary residence and remain current on property taxes, homeowner’s insurance, the costs of home maintenance, and any HOA fees.
This information is intended to be general and educational in nature and should not be construed as financial advice. Consult your financial advisor before implementing financial strategies for your retirement.
