Planning for retirement is something that’s best to do throughout your career, not just when you’re approaching that milestone and have a year or two left to work.
Only half of Americans have tried to calculate how much money they’ll need in retirement, according to a 2024 survey by the Employee Benefits Research Institute (EBRI).
However, among those workers who did the calculation, 52% were inspired to save more. Even if you feel confident in your ability to cover your retirement expenses, it’s important to be mindful of hidden costs that could impact your retirement finances. Here are three to keep on your radar.
Healthcare expenses not covered by Medicare
Fidelity Investments expects the typical 65-year-old to spend $165,000 on healthcare during retirement. That may sound surprising, but even with Medicare coverage, several expenses could arise.
For one thing, Medicare isn’t entirely free. Most enrollees don’t pay a premium for Part A, which covers hospital care. However, Part B, which covers outpatient care, charges a monthly premium, as do some Part D drug and Medicare Advantage plans. Plus, higher earners risk surcharges on their Medicare premiums.
Premiums aside, there are a number of expenses that original Medicare (Parts A and B plus a Part D drug plan) does not cover, which retirees commonly need. These include dental care, eye exams, prescription glasses and hearing aids.
You’ll also face copays and coinsurance under Medicare that you must pay out of pocket. If enrolled in original Medicare, you can buy supplemental insurance known as Medigap to help offset those costs. But then you’re looking at premiums for Medigap, too.
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Long-term care
It’s a big misconception that Medicare will pay for you to live in a nursing home or cover the cost of a home health aide. Medicare’s scope of coverage is typically limited to medical issues only. So while Medicare might pay for rehab or physical therapy because you broke a hip, it won’t pay for a home health aide because you’re getting older and need help dressing yourself and using your kitchen.
Meanwhile, the cost of long-term care can be astronomical. According to Genworth, here are the annual median costs for certain long-term care services in the U.S. for 2024:
Home health aide: $77,792
Assisted living: $70,800
Shared nursing home room: $111,325
Private nursing home room: $127,750
One option for defraying these costs is to buy long-term care insurance. But that might bust your budget, too. The American Association for Long-Term Care Insurance says an average $165,000 policy with no inflation protection purchased at age 55 by a single male costs $950 a year. For a 55-year-old female, that policy costs an average of $1,500. And for a 55-year-old opposite-gendered couple, the average price is $2,080 combined.
Of course, the actual cost of long-term care will depend on factors such as where you’re located, your age at the time of your application and the state of your health. But all told, you might spend a lot of money to put that coverage in place.
Inflation
In recent years, retirees and working Americans alike have experienced their share of rampant inflation. But even when inflation isn’t as aggressive, it’s still a hidden cost that can upend your retirement budget.
Social Security benefits are, thankfully, designed to keep up with inflation. They’re eligible for an annual cost-of-living adjustment tied to the Consumer Price Index for Urban Wage Earners and Clerical Workers, a subset of the more widely known Consumer Price Index.
But ensuring that your savings can keep up with inflation is also critical. One way to do this is to avoid eliminating equities from your portfolio in retirement. You need some growth in your portfolio to make up for rising living costs. You can work with a financial advisor to develop an appropriate asset mix based on your income needs and risk appetite.
A financial advisor can also help set you up with assets in your portfolio that generate income. These could include dividend stocks, bonds and real estate investment trusts (REITs).
It could also be a good idea to delay your Social Security claim past your full retirement age, which is 67 for anyone born in 1960 or later. For each year you do, until age 70, your benefits rise 8%. And that boost is guaranteed for life.
Having a larger monthly benefit gives you more leeway to tackle not only inflation, but also surprise medical and health-related expenses. So it’s a move worth considering if you don’t need to sign up for Social Security sooner.
