3 Hidden Costs Retirees Often Forget and How to Prepare for Them

Calculating exactly how much you need for retirement is impossible. There are too many variables involved, and no one is immune to unexpected costs. But you need a rough idea of how much you'll spend, so you know how much you need to save. You can get a ballpark figure by looking at your current spending habits and estimating how those might change as you age.

Most people remember to include things like their mortgage or car payment, groceries, and transportation. But the following three costs are easy to forget about -- and that can be an expensive mistake.

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1. Out-of-pocket healthcare costs

You'll probably be eligible for Medicare once you turn 65, but this doesn't cover all your retirement healthcare costs. Original Medicare helps you pay for prescription medications, dental or vision care, or hearing aids. It doesn't cover long-term care. You'll need additional policies to cover these services, and those carry their own costs.

A Medicare Part D plan will help you with prescription drug expenses, and a Medicare supplement plan can fill in some of the other gaps that Original Medicare leaves. Or you can opt for a Medicare Advantage plan instead. Private insurers offer these plans for those who don't want to juggle multiple policies. They cover everything in Original Medicare, plus some extras.

If you suspect you'll need long-term care, it might also be worth looking into a separate long-term care insurance policy. These can be pretty expensive, though, especially if you wait until you're older to purchase them.

2. Home-related costs

Even if you've paid off your mortgage by the time you retire, you'll still have ongoing maintenance costs. A common rule of thumb says you should budget between 1% and 4% of your home's value for maintenance each year. Build this into your estimated annual retirement expenses if you haven't already.

You'll also still have to pay for insurance, and average homeowners' insurance premiums continue to rise. This could get especially expensive if you live in an area prone to natural disasters, like hurricanes or tornadoes. Periodically shopping around for a more affordable policy can help, but you'll also want to earmark some savings to cover your future premiums.

If you plan to remain in your home throughout retirement, you may also want to set aside some funds for future mobility-related upgrades. You may be able to use your health savings account (HSA) funds to cover these expenses.

3. Taxes

Unless you have all your savings in Roth accounts, you will owe some income taxes in retirement. This could eat up a significant chunk of your traditional IRA and 401(k) funds. You might also owe state income tax. An accountant may be able to help you estimate how much money you should budget for future taxes, but keep in mind that tax brackets could change between now and retirement.

You could also owe Social Security benefit taxes on up to 85% of your checks each year. This could add thousands of dollars to your tax bill. You can either set aside money for this on your own or request that the Social Security Administration withhold taxes upfront. You can choose how much it holds back, and if it takes too much, you'll get the excess back with your tax refund.

Make your best estimate about how much the three expenses above will cost, and use that as your baseline. But revisit these assumptions as you get closer to retirement. If tax brackets have changed or your home insurance premiums have risen faster than expected, you may need to redo your retirement budget and increase your savings rate accordingly.

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