15 Signs You’re Underestimating Your Retirement Budget

RETIREMENT - RETIRED LIFE
Discover the hidden costs that could derail your retirement dreams.
Updated April 11, 2024
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senior couple walking on beach while holding each others hand

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Retirement is a time to relax and enjoy the fruits of many years of labor. But before you retire, don’t forget to account for easily overlooked costs that can put big cracks in your nest egg.

Here are some signs you might be underestimating your retirement budget. Make sure to budget for these expenses before you stop working.

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You forget about inflation

Deemerwha studio/Adobe hand holding inflation label over pennies on table

Inflation is a major challenge for seniors living on fixed incomes. Rising prices reduce your buying power and can put you at risk of running out of money during retirement.

If you plan ahead and start investing early enough, you can build up additional savings that can somewhat mitigate the risk inflation poses.

You underestimate health care costs

adragan/Adobe credit card with stethoscope

For most people, Medicare coverage kicks in at age 65. However, it’s naive to assume that this government program will cover all your health care costs.

There are many services Medicare might not cover. For example, traditional Medicare doesn’t offer vision, hearing, or dental coverage.

In addition, you will still need to cover the cost of premiums and deductibles.

You forget about long-term care costs

nelzajamal/Adobe stethoscope on notebook with long term care note

About seven out of 10 Americans will need long-term care at some point, according to the U.S. Department of Health and Human Services.

Medicare doesn't cover long-term care services. You'll need to figure out how you plan to pay for such care should it become necessary.

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Your lifestyle dreams don’t match your income

EpicStockMedia/Adobe senior couple sitting on chairs at beach watching sunset

Many people envision a retirement full of travel and leisure. That's fine if you can afford it.

However, millions of retirees soon find that sipping margaritas by the beach several times a year isn't a realistic goal, given their income and savings. If you insist on this type of retirement, you better save more.

You overlook income taxes

devrim_pinar/Adobe individual income tax return

When you retire, there's a good chance that you'll still bring in enough income to pay taxes on it. This is especially true if you saved money in tax-deferred retirement accounts.

Don't forget that Uncle Sam always wants his piece of the financial pie, even after you retire.

You don’t budget for property taxes

mojo_cp/Adobe A picture of coins by little houses

Even if your mortgage is paid off, you'll still need to pay property taxes every year. Setting aside funds regularly will prevent tax bills from taking you by surprise.

You don’t plan for home maintenance

Ivan Kruk/Adobe plumber

As you age, so does your home. If you plan on staying in your home throughout your retirement, you'll need to account for the cost of regular maintenance and occasional repairs.

You intend to buy expensive vehicles

Mike Mareen/Adobe Bugatti La Voiture Noire

Perhaps you want to upgrade your car during retirement. Or maybe you'll need something roomier, like a van, due to age and mobility issues.

Vehicles are expensive, and that cost is easy to underestimate when you plan your retirement.

You expect utility bills to remain low

Golib Tolibov/Adobe utility bills scattered over table

Our bodies might become more sensitive to heat and cold as we age. That can mean higher utility bills.

In addition, expect utility costs to rise over the years as inflation takes its bite. The bill you pay at the beginning of your retirement might seem high, but it will likely worsen over the years.

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You get carried away with entertainment costs

Spotmatik/Adobe senior friends group sailing luxury yacht

Retirement is the time to reap the benefits of years of hard work. So, by all means, enjoy your golden years.

But don’t spend recklessly. If your funds are limited, enjoy affordable entertainment options close to home rather than jet-setting around the world.

You forget that pets grow older too

Kay Abrahams/peopleimages.com/Adobe couple walking with dog

Your beloved companions will require more care as they age, just as you likely will.

Plan financially to take care of your furry friends in their golden years, too. Make sure you can afford pets before inviting them into your home.

You expect Medicare premiums to remain the same

JJ Gouin/Adobe stethoscope and cash money

Don’t expect Medicare premium costs to remain stable as your retirement rolls along.

Instead, you should anticipate costs to increase over time. It is important to budget with this reality in mind.

You ignore the need for home modifications

denphumi/Adobe sculpture of house getting slapped by various tools showing the importance of selecting tools for house renovation concept

Between the ages of 25 and 80, adults can lose up to 50% of their muscle strength, according to the Columbine Health Systems Center for Healthy Aging at Colorado State University.

As your abilities decline, you may need to make some modifications to your home, such as adding ramps, shower bars, or chairlifts. All of these changes cost money.

You overlook the need to pay legal fees

itchaznong/Adobe lawyer reading lawbook in office

Estate planning ensures that your assets are distributed in the manner you intend after your death.

Leave room in your budget for the fees you will pay to a lawyer to ensure your estate plan takes care of your loved ones and helps them avoid the headache of probate court.

You put too much faith in Social Security

JohnKwan/Adobe social security and retirement income

Social Security can be a lifesaver for many retirees. But the hard truth is that most people find their benefits only replace about 40% of their annual working income, according to the Social Security Administration.

Unless you plan on cutting back your lifestyle, you might need to find ways to make extra money during retirement.

Bottom line

insta_photos/Adobe senior woman working

Retirement should be a time to relax and enjoy yourself after years of hard work. Knowing how much you will likely spend during retirement — and leaving room in your budget for unpleasant financial surprises — is crucial to a successful retirement.

So, carefully examine the items on this list and make sure your retirement plan has budgeted for them properly.

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Author Details

Holly Humbert Holly is a writer who recognizes that there isn't a one-size-fits-all approach to personal finance. She is passionate about entrepreneurship, women in business, and financial literacy. With more than four years of experience, her work has been featured on MarketWatch and The Ways to Wealth.

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