Will Your Expenses Rise In Retirement?

Many retirees think that they’ll spend less in their golden years, but that’s often far from true. Retirement expenses like travel, healthcare, inflation, and taxes can all increase your monthly spending and wreak havoc on your budget. 


Without proper planning, you might end up spending more money than you should, which is why it’s a good idea to build an income plan that takes your real spending projections into account.

Common retirement expenses

Some spending categories typically decrease in retirement. For example, your housing costs may decrease if you downsize to a smaller house or apartment. However, there are also areas where spending often increases in retirement. It’s important to factor these expenses into your spending projections so that you can plan accordingly.


While travel might still be on hold for the foreseeable future, in a typical year, retirees spend over $11,000 on travel. Whether you’re traveling to visit friends and family or just want to see the world in your golden years, travel expenses can add up fast. It can be especially costly if you plan to split your time between two different locations, or if you move far away from family. Travel insurance is another expense that you’ll want to include in your budget.


To budget your travel expenses in retirement and save accordingly, you should make a plan for your travel. Think about how often you anticipate traveling per year, whether or not you have any big trips on the horizon, and how important travel will be to you in retirement. No matter what your travel plans are, we can help you build them into your financial plan.


Healthcare is another expense that typically rises in retirement. Fidelity estimates that a healthy couple will spend an average of $295,000 on healthcare in retirement, excluding long-term care. Longer life expectancies, as well as health care cost inflation, are both factors that influence the cost of healthcare in retirement.


Long-term care is an additional expense that you’ll likely encounter in retirement, with nearly 70% of people requiring long-term care at some point. According to a recent study by Genworth, the average cost of a room in a nursing home is $100,000 per year, an increase by nearly 6% since 2019.


To minimize your healthcare costs and make sure that you have enough coverage, it’s critical to build the right healthcare plan. This can include a combination of Medicare and long-term care insurance.


Protecting your wealth against inflation is a top concern for many retirees. It’s easy to spend more when goods and services cost more, and the money you saved decades ago may not be worth as much thanks to inflation. 


To help combat inflation and preserve your savings, it’s important to remain actively invested in retirement. This can help you to reduce the impact of inflation and help you to continue to grow your wealth.


Taxes can eat up a significant portion of your retirement nest egg, especially if you have a lot of funds tied up in tax-deferred accounts like 401ks or traditional IRAs. This is because required minimum distributions for these types of accounts are taxed as ordinary income.


To minimize the effect that taxes have on your savings, you should make a plan for tax-efficient withdrawals to increase the longevity of your investments and provide more flexibility for retirement income. You must also consider the effect that your tax bracket has on your retirement income since your tax bracket informs the percentage of your Social Security benefits that are taxed, as well as your Medicare Part B premiums.

How to keep your spending under control in retirement

There are some retirement expenses, like healthcare costs, that you only have minimal control over. However, spending creep is also a culprit when it comes to spending too much in retirement. Luckily, there are ways that you can keep your spending under control while still making your money work for you.

Know your ideal lifestyle

To put your retirement savings in context, it’s a good idea to envision your ideal lifestyle for a happy retirement and use your savings to achieve it. Maybe you want to spend a lot of time with family in retirement, or maybe travel is a big priority. By knowing what expenses are important to you and what things you can do without, you can streamline your retirement spending while still being able to afford the things that matter most.

Account for your changing needs

Your needs and expenses will likely change as you move through retirement, and you’ll probably spend more or less on different things throughout your golden years. While the first couple of years may be spent on river cruises throughout Europe, as you age most of your money might be spent on health-related expenses. As long as you work with someone who can help you make a plan to account for the changes in your spending habits, you’ll be prepared for what comes next.

Our team can help you plan for your dream retirement

It’s a common misconception that spending typically decreases in retirement. However, with a little planning, you can be prepared for increased retirement expenses and take them in stride. 

Comprehensive financial planning can help you to reach your goals while taking retirement expenses into account. If you’re nearing retirement and need help with your financial plan, give us a call. Our team is here to help, and we’d love to help you with your retirement goals.

Cash flow planning, lifestyle planning, Retirement Planning
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