Most people think they know how much money they’ll need for retirement—but when the time comes, they’re often shocked by unexpected costs. Underestimating these expenses can wipe out savings faster than planned and even force retirees back into the workforce.
Here are 10 of the biggest ways people underestimate retirement costs—and how to plan ahead so you don’t get caught off guard.
1. Healthcare Costs Are Way Higher Than Expected
Why People Underestimate It:
- Many assume Medicare covers everything—it doesn’t.
- Long-term care, prescription drugs, and unexpected health issues add up quickly.
How to Plan for It:
- Expect to spend $300,000+ per couple on healthcare in retirement.
- Open a Health Savings Account (HSA) early for tax-free medical savings.
- Consider long-term care insurance before it becomes too expensive.
2. Inflation Erodes Buying Power
Why People Underestimate It:
- A dollar today won’t buy the same amount in 20+ years.
- Inflation reduces the value of fixed-income pensions and savings.
How to Plan for It:
- Assume a 3%+ annual inflation rate when planning withdrawals.
- Keep a portion of investments in stocks or real estate to outpace inflation.
- Avoid keeping too much cash sitting idle in low-interest accounts.
3. Taxes Don’t Disappear in Retirement
Why People Underestimate It:
- Social Security, 401(k) withdrawals, and pensions are often taxable.
- Required Minimum Distributions (RMDs) can push retirees into higher tax brackets.
How to Plan for It:
- Diversify tax strategies—use Roth IRAs for tax-free withdrawals.
- Convert some 401(k)/IRA funds to Roth before retirement.
- Understand how Social Security is taxed to avoid surprises.
4. Housing Costs Don’t Go Away
Why People Underestimate It:
- Even if your mortgage is paid off, property taxes, insurance, and maintenance still cost thousands per year.
- Downsizing isn’t always as profitable as expected due to selling fees and moving costs.
How to Plan for It:
- Budget for ongoing maintenance and rising property taxes.
- Consider downsizing earlier to free up cash while home prices are high.
5. Retirees Spend More on Entertainment and Travel
Why People Underestimate It:
- Many people assume they’ll spend less in retirement—but the early years often include more travel, dining out, and hobbies.
- Costs for bucket list trips and family visits add up fast.
How to Plan for It:
- Budget extra for travel and hobbies, especially in early retirement.
- Consider part-time work or passive income to help fund fun expenses.
6. Social Security Doesn’t Cover Enough
Why People Underestimate It:
- Social Security only replaces about 40% of pre-retirement income (if that).
- Future benefits may be reduced as the system faces funding issues.
How to Plan for It:
- Treat Social Security as a bonus, not your primary retirement plan.
- Delay claiming benefits until age 70 to maximize your monthly check.
7. Helping Adult Children and Grandchildren Becomes Expensive
Why People Underestimate It:
- Many retirees end up financially supporting adult children or paying for grandchildren’s education.
- Unexpected family emergencies can drain savings fast.
How to Plan for It:
- Set clear financial boundaries with family.
- Keep an emergency fund separate from retirement savings for unexpected support.
8. Longevity Risk—Living Longer Than Expected
Why People Underestimate It:
- Many people plan for a 20-year retirement but could live 30+ years instead.
- Running out of money later in life is a serious risk.
How to Plan for It:
- Assume you’ll live to 90 or beyond when planning withdrawals.
- Keep part of your savings in growth investments to avoid running out.
- Consider annuities or other income-generating investments.
Read More: The 10 Most Overhyped Investment Strategies (and What Works Instead)
9. Unexpected Big-Ticket Expenses
Why People Underestimate It:
- Roof replacements, car repairs, and medical emergencies can drain savings quickly.
- Many retirees don’t keep enough liquid cash for these surprises.
How to Plan for It:
- Keep a dedicated emergency fund for big expenses.
- Budget for major home repairs and replacements in advance.
Read More: The 7 Most Overrated Budgeting Hacks That Don’t Actually Work
10. Underestimating the Cost of Long-Term Care
Why People Underestimate It:
- Nursing homes, assisted living, or in-home care can cost $5,000–$10,000 per month.
- Medicare doesn’t cover long-term care, and Medicaid requires spending down assets.
How to Plan for It:
- Consider long-term care insurance before it becomes too expensive.
- Plan for alternative care options (in-home care, family support, etc.).
Read More: 10 Financial ‘Rules’ That Are Outdated in Today’s Economy
