6 Retirement Costs You Might Underestimate

There's a good chance you're looking forward to retirement. And, ideally, you're planning for retirement, too, estimating how much income you'll need and how you'll get it. Indeed, a recent Goldman Sachs report on retirement readiness found that retirees who had planned for their retirements were far more satisfied with their retirement income.

You can do a lot of planning for your retirement, but if you overlook some common but significant expenses, or you underestimate what they may cost you, you can still end up in financial trouble. Here are six costs to not underestimate.

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1. Healthcare costs

Let's start with a biggie. It's no secret that healthcare is expensive, but you might not appreciate how expensive it can be -- especially in retirement. According to Fidelity, a 65-year-old retiring in 2025 can expect to spend $172,500, on average, on medical and healthcare expenses throughout their retirement -- and that doesn't even include long-term care, over-the-counter medications, or most dental services. For a married couple, the average total is $345,000.

And remember -- those are averages. You might end up spending less on healthcare but there's a very real chance you could spend more. So budget generously for healthcare costs, just in case. And if you can get or stay healthy, that might reduce how much healthcare you need down the road.

2. Long-term care

Here's another healthcare-related expense: long-term care. Long-term care insurance is quite expensive -- but that's because care is expensive, and there's a good chance you'll need long-term care at some point in your life. A 2022 report from the U.S. Department of Health and Human Services noted:

Most Americans underestimate the risk of developing a disability and needing long-term services and supports (LTSS). Using microsimulation modeling, we estimate that over half (56%) of Americans turning 65 today will develop a disability serious enough to require LTSS, although many will need assistance for less than three years. About one in five of all adults (22%), however, will have a disability for more than five years.

Meanwhile, the 2024 Genworth Cost of Care survey reported that the median cost of a home health aide was $77,792 annually, while the national median cost of a semiprivate room in a nursing home was $111,325.

So think about whether you should buy a long-term care policy. You may be able to buy a hybrid life insurance and/or annuity policy with long-term care benefits included.

3. Inflation

Inflation is not an expense that you get a specific bill for, but it will quietly hike the size of many of your bills over time -- and it can shrink your nest egg's purchasing power significantly over time. For example, if inflation remains at the long-term average of around 3%, over 25 years, your purchasing power could be cut in half. So if you've planned to have, say, $100,000 in income in year 25 of your retirement, it might only be able to buy what $50,000 or $60,000 buys today. A $30,000 car today could cost $60,000 in 25 years. Yikes!

So factor inflation into your planning, and save accordingly. If you're still a long way from retiring, you might need to aim not for a $1 million nest egg, but potentially a $2.5 million nest egg. (Each of us is in a different situation, of course, so do your own math.)

Dividend-paying stocks can help you keep up with inflation, as dividends tend to rise over time. And Social Security benefits get nearly annual inflation increases, via cost-of-living adjustments (COLAs).

4. Housing expenses

Many people underestimate their housing expenses in retirement, because they forget that they may need a new roof or a new furnace at some point. And while you may enter retirement with your home paid off, you'll still have to pay for homeowner insurance, property taxes, utilities, repairs, and maintenance. You may also pay to make your home more accessible and safer as you age, perhaps installing a ramp or a walk-in shower.

5. Taxes

You may retire from your job, but you'll still be preparing a tax return each year -- or paying someone else to do it. Unless you live in one of the 13 states that don't tax retirement income, you may be taxed on your Social Security benefits, your pension income, and/or your withdrawals from retirement accounts. Also, depending on where you live, you may be paying sales taxes, property taxes, and/or other taxes.

6. Your loved ones

Finally, many people overlook this expense category, but both now and when you're retired, various loved ones may need or want your help. A kid might need help pulling together a down payment to buy a home, for example, or another loved one might end up in a financial jam, wanting to borrow money that may or may not be paid back. Then there are gifts. If you have a large extended family and/or you're a very generous sort, you might be spending many hundreds or even several thousand dollars a year on loved ones. So think this possibility through and plan accordingly.

These are some key expenses no one should ignore when planning for retirement. If you want your future to be financially comfortable, make sure to have a solid, realistic plan.

Selena Maranjian has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Goldman Sachs Group. The Motley Fool has a disclosure policy.