The Biggest Retirement Expenses Most People Forget About

Key Points

• When planning for retirement, many people don't take taxes into account.

• Medical care is another common thing that people overlook when making retirement plans.

• Failing to consider these and other significant costs, including long-term care expenses, can lead to serious financial problems for retirees.

• The $23,760 Social Security bonus most retirees completely overlook ›

If you want to be financially secure in retirement, you should have a pretty good idea of the amount of money you'll need to live on. This will allow you to ensure you're saving enough.

There are a bunch of methods of estimating your retirement savings needs, including aiming for a nest egg equal to 10 times your final salary. However, as you consider what your finances will look like in the future, it's critical that you think about the big picture and factor in all of the expenses you're likely to incur.

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Unfortunately, far too many people forget some of the biggest costs they'll face. This can be a huge problem, because neglecting to plan for these retirement expenses could leave you falling far short of the money you need.

Here are three often-overlooked costs that you can't afford to forget about during your retirement planning process.

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1. Taxes

According to a Lincoln Financial Group survey, close to 1 in 4 retirees didn't plan for taxes as a retirement expense, while 36% admitted that taxes ended up being a bigger expense than they had anticipated.

If you have a traditional 401(k), you'll be taxed on distributions from it at your ordinary income tax rate. The same is true if you have a traditional IRA: You're going to have to give the IRS a cut. Plus, depending on how high your income is, you could even end up owing taxes on up to 85% of your Social Security benefits.

If you forgot about taxes, you could find yourself falling short as you end up with less money coming home than you anticipated after the government takes its cut.

2. Medical care

Fidelity reports that 1 in 5 Americans have never considered what healthcare will cost in retirement. For many retirees, that's because they assume that Medicare is going to pay for everything. Sadly, it will not.

Medicare does help cover many costs, but there are premiums to pay. With Medicare Part B, which covers outpatient services, you'll also have 20% coinsurance costs to pay for. And this is just the start of the expenses you may incur, as there are plenty of things Medicare doesn't cover, including dental care and hearing aids.

Fidelity warns that a 65-year-old retiring in 2025 would need an average of $172,500 to pay for medical care throughout retirement. If you haven't planned for this, you could end up in serious financial trouble.

3. Long-term care

Finally, long-term care is another expense that many will face but few plan for.

Although an estimated 70% of individuals who are 65 or older will require long-term care at some point during their lives, just 3% to 4% of people who are 50 or older have any kind of long-term care policy.

Long-term care can cost hundreds of thousands of dollars, and Medicare almost never pays a dime of this money. If you haven't made a Medicare plan or purchased long-term care insurance, you'll run through your nest egg very quickly. This can jeopardize your spouse's financial security and your chance to leave an inheritance.

It's critical that you plan for these three major expenses by taking taxes into account, saving for medical care, and creating a long-term care plan to afford the nursing home or home healthcare that you may need. This should be a key part of your preparations for your later years, so your retirement plans don't run dry.

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