Beware These 7 Unexpected Costs of Retirement

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When you retire, you will have some major expenses. Do you know what they are?

If you love to travel, vacation costs might take up a good portion of your budget. Food, groceries and utilities will probably take their fair share of your money as well.

But what are you missing?

Here are seven retirement costs that people often forget to figure into their financial calculations.

1. Health insurance

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You’ll have Medicare in retirement, so you don’t need to worry about health insurance, right? Not exactly.

First, if you retire early, you’ll need to buy your own health care coverage for a few years. Unless you qualify because of a disability, Medicare, the federal health insurance program primarily reserved for seniors, isn’t available until you’re 65.

Next, Medicare doesn’t mean totally free health care. Most people don’t pay a premium for Medicare Part A — that’s your hospitalization coverage — but there is a $1,364 deductible as well as some possible co-insurance costs.

Medicare Part B, which covers outpatient care, has a standard $135.50 premium and a $185 deductible, after which you pay a share of doctor, outpatient therapy and medical equipment costs. There are additional premiums and costs for Medicare Part D. That’s for your prescription drug coverage.

Finally, since there are some gaps in what original Medicare will cover, you may opt to go with a Medicare Advantage plan, also known as Medicare Part C. These plans bundle all your original Medicare services with additional coverage for things such as dental or chiropractic care. Those additional services usually come at an additional cost.

You could also buy a Medicare supplemental, or Medigap, policy to pay for some uncovered services.

What it will cost you:

2. Long-term care

Nurse with elderly woman.
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However, long-term care is the largest expense not covered by Medicare. If the time comes you need such care, you’ll spend an average of $3,628 a month to live in an assisted living facility or $7,698 a month for a private nursing home room, according to 2016 government estimates.

Unless you had the foresight to purchase a long-term care insurance policy — not cheap in and of itself — you’ll need to cover that cost of care yourself. Not even Medicare Advantage is going to pay for that.

For more tips, check out “Ask Stacy: Should I Buy Long-Term Care Insurance?

3. Home renovations

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Between long-term care costing so much and modern seniors’ active lifestyles, it’s not surprising that AARP found 90 percent of those age 65 and older want to stay in their homes throughout retirement. Known as “aging in place,” this practice brings its own set of costs.

Doorways may need to be widened, a bedroom brought to the main floor and the bathroom renovated to accommodate the limited mobility that often comes with advanced age. AARP also recommends installing nonslip flooring, an accessible entryway without steps and lever door handles.

4. Retirement income taxes and penalties

Uncle Sam and taxes
Sean Locke Photography /

If your budget is tight even after claiming Social Security, you may want to keep working or take a part-time job. However, if you’ve started claiming those retirement benefits early, your outside income could end up taking a bite out of your benefit checks.

Until you reach your full retirement age (FRA), which is around 66 for most folks, the government limits how much extra money you can make without consequences while receiving Social Security benefits.

For 2019, the threshold is $17,640 if you’re age 62-65 and already claiming Social Security; if you earn more than $17,640, the government will ding your benefits $1 for every $2 you make over the limit.

If you will be turning your full retirement age of 66 in 2019, you can earn up to $46,920 in the months before your birthday, and the government will impose a $1 penalty for every $3 you earn above that. Once you reach FRA, you can earn as much as you like and get 100 percent of your benefit check.

The Social Security Administration wants you to know that you don’t “lose” those withheld benefits. After reaching FRA, your monthly benefits will be increased permanently to account for the withheld benefits.

On another topic, if you’re receiving income from a traditional retirement plan such as an IRA, you also may face a tax bite. After age 70½, the government starts requiring minimum distributions from those plans. That extra money could push you into a higher tax bracket.

5. Needy adult children

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Beware the dreaded boomerang kids. Much has been written about adult children returning home to roost, but that shouldn’t be your only concern.

No, you also have to worry about children who might ask you to co-sign loans and then bail on the payments, leaving you to hold the bill. Or they may need your money to pay their rent, student loans, phone bills or any of dozens of other possible expenses.

For more on the topic, check out “Still Supporting Your Adult Kids? 5 Steps to Set Them Free.”

6. Inflation

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This isn’t something you can pencil into your budget as a line item, but inflation can’t be ignored. It’s tempting to do so, though, since the U.S. has spent the past decade in a low-inflation environment.

However, you have to plan for what the next 10, 20 or 30 years will bring. Heaven forbid we return to the age of double-digit inflation rates, which were last seen in the early 1980s, but that’s always a possibility.

Rising inflation has the potential to erode your money’s purchasing power and push up the cost of everything you buy — from food to rent to travel. Just take a look at “11 Everyday Items You Once Could Buy for Less Than $1.”

7. A long life

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People are living much longer than they used to. A long life means extended opportunities to enjoy friends, family and hobbies, but it also compounds all the expenses detailed above.

Most notably, it gives inflation more time to eat away at the value of retirement savings and means more years covering health care expenses.

There is no way to eliminate most of these expenses in retirement, but there also is no reason to get blindsided. Work these costs into your financial plan so you’ll be ready for whatever may come.

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