Retirement Costs You May Not Be Expecting

It's easy to prepare for expected retirement expenses such as food and housing. Learn about some unexpected retirement expenses and how to prepare.
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unexpected retirement expenses

Planning for retirement requires thinking through how you will approach paying for the things you need once you stop working. You’ll need to estimate what your retirement expenses will be and consider how any sources of income you have available such as Social Security, investments, retirement accounts, or pensions will cover them.

Some retirement costs are common to everyone, so they are no surprise and don’t tend to catch anyone off guard. For example, you’re certainly aware that you’ll still need the necessities such as food or housing, and they don’t suddenly become free once you retire.

A retirement planning calculator can help you figure out how much you’ll pay per month in expected expenses, but you should be prepared for unexpected expenses as well.

Here are a few unexpected retirement expenses that you may find surprising, as well as some thoughts on how you can plan for them.

Home Modifications

It’s very common for retirees to want to stay in their current home and “age in place.” Most people don’t like moving, especially when they’ve been in their home for years and it’s where they are most comfortable. What’s more, assisted living communities can be expensive, and there’s often emotional value tied up in a home.

In many instances, retired people can age in place. However, as you age you may need to modify your home to make it more livable.

The home modifications that work best for you will depend both on the condition of your home now and what you need when you are older. There’s no exhaustive list, but some to consider are:

  • If you require a walker or wheelchair when you are older then doors may need to be widened or a ramp installed.

  • You may also need to evaluate your flooring material. Long, shaggy carpet is easier to trip on. Smoother surfaces may be too slick. Think about what will work best for you.

  • Stairs become more difficult to climb. If you plan to stay in your home then a lift or home elevator may be needed.

While it’s impossible to know exactly what you’ll need as you age, it may be helpful to consider your options now. Spend some time researching home modifications for seniors.

If you think a particular home modification will make your life easier or more enjoyable, it could be worthwhile to do the modification now while you are younger and more physically capable. It will also put the expense behind you instead of leaving it in front of you as an unknown, which could alleviate stress as well.

Explore retirement accounts from popular firms and banks to find the best one to help you prepare for the unexpected in retirement.

Medicare Premiums

Many people mistakenly believe that medicare is free and are taken by surprise to find out that they must still pay monthly premiums for it in retirement.

Most people receive Medicare Part A, the portion that pays for hospital visits, premium-free. Still, there is a premium associated with Part B, the medical insurance part. In 2021, the standard premium for Part B was $148.50 per month.

However, you may also have to pay an additional surcharge if your income is above certain thresholds. The Income-Related Monthly Adjustment Amount, or IRMAA, is based on your modified adjusted gross income (MAGI) from two years prior. That means your 2021 Part B premium is based on your MAGI from 2019. IRMAA could easily double your monthly Part B premium, so it’s important to note.

You may have some ability to avoid IRMAA or reduce the amount you pay if you plan ahead. Work with your tax preparer starting at least two years before you turn 65 to see if you are in a position to make any changes that could affect your IRMAA surcharge.

Long-Term Care Expenses

Long-term care involves medical care, but it also includes providing assistance for carrying out everyday tasks like bathing and getting dressed. These tasks are called “activities of daily living,” and they are vital to maintaining a good quality of life as people grow older. According to the Administration for Community Living, there is a 70% chance that someone turning 65 today will need some form of long-term care.

This care can be provided by family members and friends, or by professionals either in the form of custodial care such as at a nursing home or assisted living center. Professionals can also make home visits depending on the level of care required.

The idea of long-term care is not what is surprising to most people, but that most long-term care expenses are not covered by Medicare. Consider long-term care costs in your retirement plan.

One way to do this is to first consider what the average costs for different types of long-term care are. Then, estimate how long you may need care based on your own health and family history. Factor that expenditure into your retirement budget and have a plan for how you will cover it if the need arises.

This budgeting process will naturally spur you to think about how you will seek care if needed, and what the best way for you will be considering your needs and resources such as financial means, living arrangement, and family support.

You may also consider long-term care insurance.

Taxes on Social Security Benefits

Social Security provides a significant amount of retirement income for most U.S. retirees. Approximately 37% of men and 42% of women receive more than 50% of their retirement income from Social Security. Social Security benefits provide nearly all income for roughly 25% of retirees.

Because of its importance and popularity, Social Security benefits come as a surprise to almost no one. What does catch some people by surprise though is that those benefits are taxed. Because you were taxed in order to qualify for those benefits it may seem odd that you are then taxed again when you receive them. For many, however, that is the reality.

Not all of your monthly benefit is taxed though. In fact, the amount of your benefit that is taxable depends on a special measure of your income that the Social Security Administration calls your combined income. Your combined income is your adjusted gross income plus any nontaxable interest you receive and half of your Social Security benefit.

Your benefits may not be taxable at all if your income is low enough, or up to 85% of your benefit may be taxable. The higher your combined income, the greater amount of your benefit is taxable.

A financial retirement planner or tax preparer can help you figure out if you have any options available to you. You may be able to reduce your combined income to a level that lowers the amount of your benefit that is subject to taxation.

About Author
Brandon Renfro is a Certified Financial Planner (CFP), a Retirement Income Certified Professional (RICP), and an IRS credentialed Enrolled Agent (EA). He runs his own retirement and wealth management firm and is an assistant professor of finance. Brandon is a regular contributor to MoneyRates and several other financial publications. Brandon's wealth of expertise and practical knowledge have led to him being quoted in The Wall Street Journal, Forbes, U.S. News & World Report, AARP, Business Insider, and other national publications.