3 Hidden Costs Retirees Often Forget -- and the Best Ways to Prepare

When you plan for retirement, it’s important to account for the different expenses you’re likely to face on a regular basis. And you probably know to factor certain costs into your budget, like food, utilities, car insurance, and leisure.

But some key retirement expenses may slip off your radar. Here are three you can’t afford to forget about.

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1. Healthcare costs beyond Medicare premiums

You may be aware that to get Medicare coverage, you’ll need to pay a monthly premium for Part B, which covers outpatient care. You may also be on the hook for a monthly premium for your Medicare Advantage or Part D drug plan (though there are $0 premium plans out there as well).

But don’t assume that your healthcare spending will be limited to Medicare premiums. There are many additional costs you might incur, from deductibles to coinsurance to services not covered by Medicare.

To avoid a financial crunch, build a line item into your budget that accounts for these costs. Better yet, if you’re able to contribute to a health savings account during your working years, reserve that money for when you’re 65 or older so you can cover at least some of the out-of-pocket expenses that come with being a Medicare enrollee.

2. Home maintenance and major repairs

You might manage to get to retirement with your home paid off in full. But even if that’s the case, you’ll still need to budget for other homeownership costs – namely, maintenance and repairs. And those might end up being more expensive than expected.

While you may have more free time to tackle home maintenance projects due to bring retired, some of that work may be too difficult to handle if you don’t have the strength or mobility you once did. And if you’ve owned your home long enough for your mortgage to be paid off, it may be on the older side, which means you could be looking at many repairs as various systems age.

Make sure to have plenty of money set aside for home maintenance and repairs. A general rule of thumb is to plan for those costs to equal 1% to 4% of your home’s value. So if your home is worth $500,000, you’d be looking at $5,000 to $20,000 a year. And with an older home, you may want to err on the higher end of that range.

3. Taxes

Many people forget about taxes in the course of retirement planning. But you may have a number of income streams that are taxable, including withdrawals from a traditional retirement account, investment earnings in a taxable brokerage account, or earnings from a part-time job. In some cases, your Social Security benefits may be taxable, too.

There are steps you can take to reduce your tax burden in retirement, like converting traditional retirement accounts to Roth accounts ahead of time. But it’s also important to work with a financial advisor or tax professional to create a strategy for accessing investment income and tapping your savings while minimizing your IRS obligations each year.

Underestimating the cost of healthcare expenses, home upkeep, and taxes – or forgetting about these costs entirely – could throw your retirement budget out of whack. Make sure to not only plan for these expenses, but find ways to make them easier to manage.