The 9 Expenses Retirees Always Overestimate - And It's Costing Them Thousands

When making a retirement plan, many people worry about overspending. However, overestimating your spending could be worse.

This is not to say you should lowball your retirement budget. Some expenses, such as long-term care, deserve a safety margin. The secret is not to build your entire budget around the lifestyle you imagine on day one.

Spending often changes with age, health, habits, and circumstances. Research has found that household spending generally declines as people age, partly because they naturally spend less as their health and mobility change.

Health care

Health care is one of the biggest retirement expenses, but it needs context. Fidelity estimates that a 65-year-old retiring in 2026 could expect to spend an average of $185,500 on health care and medical expenses throughout retirement.

That's a substantial amount, but it isn't a $185,500 medical bill. It includes Medicare premiums, as well as deductibles, copayments, coinsurance, and prescription costs. That doesn't mean you need $185,500 in a separate health care account on the day you retire. What you actually spend depends on your health, income, coverage choices, and how long you live.

The takeaway? Don't dismiss health care as a minor retirement expense, but don't treat the Fidelity figure as money you have to spend entirely out of pocket, either.

Travel

If you're thinking of your golden years as a series of cruises and visits to every grandchild you have around the country, that may well happen during the first few years of retirement.

The traditional Go-Go, Slow-Go, and No-Go framework captures this pattern. The Go-Go years tend to be the most active and travel-heavy. Later, travel often slows as people tire of long flights or simply prefer staying closer to home.

BLS data show transportation spending falls substantially among older households, while NBER research finds that spending declines with age.

Don't build a retirement budget around taking three big trips every year until you're 90.

Home maintenance and improvements

Your house still needs repairs once you retire. The roof still has a useful life, and plumbing remains determined to cause trouble at the least convenient time.

Still, priorities change. Some people downsize. Others no longer care about having the latest kitchen or bathroom, or postpone cosmetic, non-essential projects.

Instead of eliminating a home-repair reserve, keep it, but don't assume a constant pace of renovations and maintenance spending.

Cars and transportation

As you enter retirement, there's no daily commute. You may run errands less frequently or consolidate trips, which translates to less gas, less frequent tire replacement, and potentially fewer repairs. Many couples also discover they no longer need multiple vehicles.

According to the BLS, transportation spending falls from an average of $11,414 for households headed by someone 65 to 74 to $6,855 for those 75 and older.

If you're currently budgeting for retirement as though you're likely to drive the same number of miles you do while working, you're giving your car budget too much room.

Work-related expenses

Here's one expense you might not miss at all: paying to go to work. Commuting costs disappear or shrink. There are no more lunches purchased near the office, dry-cleaning bills, professional clothing, and parking fees.

Consider clothing. Households headed by people 65 to 74 spent an average of $1,377 on apparel and services, compared with $2,032 for households headed by people 55 to 64. Spending falls further for those 75 or older.

Mortgage payments and other housing costs

If you don't plan to pay off your mortgage, this one isn't for you. But if you're on track to pay off your home, don't include mortgage payments in your retirement budget.

Older homeowners are much more likely to have a paid-off home. Recent Federal Reserve data found that roughly 73% of homeowners ages 65 to 69 have no mortgage, rising to about 92% among homeowners 85 and older.

Property taxes, homeowners insurance, utilities, and maintenance don't disappear. But if you eventually downsize, your housing costs could change again.

Food and dining out

At the beginning of your golden years, you may eat out more. Still, food spending generally declines with age.

BLS found that households headed by someone ages 65 to 74 spent an average of $8,483 on food, compared with $7,168 among households headed by someone 75 or older.

There are several possible reasons. As households get smaller, older adults may eat out less frequently and cook simpler meals.

Entertainment and hobbies

The TV often shows ads of older people golfing, taking classes, and joining clubs every waking hour. And you may absolutely do those things, just not forever.

BLS data highlights the same broader spending pattern seen elsewhere. As people age, some activities become less appealing or convenient.

Don't plan a retirement devoid of fun. But a budget that assumes constant new hobbies, memberships, events, and adventures for 30 years may be off.

Taxes

Your tax bill doesn't disappear in retirement. You may have deductions or tax credits that change your liability. Social Security may be partially or entirely nontaxable depending on your income. Withdrawals from traditional retirement accounts generally create taxable income.

Taxes are one area where you should run the actual numbers. Higher-income retirees may still face substantial tax bills. But the tax bite isn't automatically the same as it was during your working years.

The goal isn't to spend as little as possible

A conservative retirement budget that provides a comfortable cushion during retirement is a great thing. The problem comes when every expense is projected at your current level for the next 20 or 30 years.

Your spending changes as your priorities, health, and daily routine change. If you overestimate, you may end up with more money than you expected. 

However, there's a downside to being too conservative. You could spend decades worrying about money while skipping trips, hobbies, meals out, and other experiences you could have comfortably afforded.

Bottom line

A good retirement plan should leave room for both possibilities: unexpected costs and the possibility that you won't need to spend nearly as much as you feared.

Build your retirement budget with a cushion to withstand economic downturns, but don't treat every expense as a worst-case scenario. Review your spending assumptions by decade and allow yourself to spend some of the money you've saved on the experiences that matter to you while you still can.

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