Think You'll Spend Less in Retirement Than You Do Today? 3 Reasons That May Not Work Out Like You Expect.
Key Points
Inflation will continue to drive up living expenses.
Aging typically brings increased healthcare costs, and Medicare doesn't cover everything.
Social Security may not go as far in the future as it does today.
- The $23,760 Social Security bonus most retirees completely overlook ›
At first glance, the idea that you might spend less in retirement than you do today seems logical. After all, once you're retired, you'll no longer have to save for retirement, and you may no longer have to pay to support children or elderly parents. That can significantly reduce your out-of-pocket costs. If you plan to move to a more affordable area, that could further reduce your expenses.
But some factors could work against your goal of keeping your retirement costs down. The three items below in particular could prove problematic unless you've planned for them in advance.
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1. Inflation
Inflation will continue to drive up living costs over time. That's not a secret, but it can be easy to overlook. You may have fewer expenses in retirement, but still pay more overall due to rising costs.
You can manage this by building inflation estimates into your retirement plan. The actual inflation rate varies over time, but you can use a 3% average annual rate as a rough estimate of how quickly your costs will grow.
2. Healthcare
Healthcare costs are also subject to inflation over time and often rise faster than the standard inflation rate. Many people find they require more medical care as they get older, even if they're relatively healthy.
A recent Fidelity report found that a 65-year-old retiring in 2026 will spend an average of $185,500 on healthcare costs in retirement. This does not include long-term care costs. If you underestimate this, you could find yourself burning through your savings faster than expected.
3. Social Security
You will likely be able to count on Social Security benefits to help you cover some of your retirement costs, whether you're retiring next year or in three decades. What's less certain is how far those checks will go.
The Senior Citizens League (TSCL) recently reported that Social Security benefits have lost nearly 14% of their buying power since 2016, and the program is also a few years away from possible benefit cuts. So, you may have to cover more of your retirement expenses on your own than you expected to.
None of the three things above has to derail your budget, though. Just make sure to build them into your retirement plan and remain willing to adapt if your circumstances change down the road.
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