Surprise Retirement Costs: What Seniors Need to Know To Protect Their Savings

Our research revealed that about one in five retirees experience significant financial worry, and 42 percent report feeling more stressed now than before retirement. This increased stress makes sense, given the complex economic factors at play in recent years: The COVID-19 pandemic and supply chain disruptions pushed inflation to its highest level since 2000, reaching seven percent in 2021. Although inflation has been slowly declining, the cost of groceries alone rose by five percent in 2023.

According to the National Council on Aging, approximately 40 percent of older Americans rely solely on their Social Security income to get by, which tends to be about $1,657 monthly. The typical retiree in our study spent $2,984 monthly, $1,000 more than the average Social Security benefit. This means that most retired people must find ways to supplement their Social Security income and plan well in advance for the costs of everyday living. Currently, about 32 percent of retirees in our study have started working again to supplement their retirement income or savings.

While each person and budget are unique, a general rule of thumb is that retirees should plan their expenses to be 70 to 80 percent of their pre-retirement income. Below is an example budget for retirees, providing a benchmark for those planning for retirement. While each individual's costs may vary, this table illustrates typical monthly spending among the retirees we surveyed.

Most of the typical expenses in the table above fall within reasonable limits according to common financial advice. For example, retirees in our study typically spent $800 monthly on rent or mortgage, which is reasonable, as it is within the recommended 30 percent of total expenditures. Other housing costs, like property taxes, and utilities, also seemed appropriate. Similarly, spending on food, healthcare, and general living expenses such as insurance and personal care are also aligned with common financial guidelines for retirees.

However, the median spending in a few categories could be approaching a risky level: The median car payment of $323 stands out. Ideally, retirees should aim to have their vehicles paid off before retiring. Credit card or loan payments at $300 per month also pose a concern, as reducing or eliminating debt before retirement can help alleviate financial stress.

Over half of retirees feel they're living month-to-month, and more than one in four frequently stress about being able to afford the basic necessities. For some, cutting back on discretionary spending categories such as housekeeping services, travel/vacations, dining out, and entertainment could help make ends meet.

While decreasing spending is helpful for those on fixed incomes, they also need to ensure this time in their lives prioritizes enjoyment while making ends meet. Roughly 28 percent of retirees are not confident they'll be able to maintain their lifestyle throughout retirement, though. Whether their interests include entertainment, world travel, or family fun expenses, seniors should clarify their priorities for their golden years, and budget for them.

Retirement brings many financial adjustments, and unexpected expenses can be particularly challenging for those living on a fixed income. Nearly one in seven retirees wish they had more funds for basic living expenses, and 27 percent frequently worry about affording necessities. Additionally, nearly half of retirees feel unprepared for future cost and most have been surprised by unexpected expenses that cropped up in their retirement years.

Despite an 8.7 percent increase in Social Security cost-of-living adjustments in 2023, more than one in ten seniors still find that inflation and rising living costs are among their most unexpected expenses. Grocery and food costs in particular have taken many older people by surprise, as their costs have risen faster than many other goods.

Home maintenance costs are also a significant concern, with 20 percent of retirees finding these expenses particularly surprising. For those living in older homes or disaster-prone areas, accounting for these costs in retirement planning is crucial.

Among all of the unexpected retirement expenses, though, more than one in four retirees said medical and healthcare costs were the most surprising. After all, even people in great health can still face accidents or contend with genetic medical conditions, which can arise out of the blue. Generally, women need to save more than men for healthcare in retirement, with recommended savings of $217,000 compared to $184,000 for men. On average, a couple will need around $413,000 to cover healthcare costs post-retirement.

Though navigating medical bills and health insurance can be a confusing and daunting task, the healthcare industry is still working towards better price transparency. In the meantime, there are strategies retirees can use to prepare and save for these expenses:

1. Change your perspective: View healthcare costs on an annual basis rather than as one-time payments. Consolidate your premium payments and yearly deductibles into a single savings goal. Additionally, set aside extra funds for co-pays and unexpected expenses.
2. Create a dedicated medical savings account: Although Health Savings Accounts (HSAs) are useful, they require a qualifying high-deductible health plan. Consider setting up a separate account specifically for health-related expenses, allowing you to monitor available funds more effectively.
3. Assess the need for supplemental insurance: While Medicare covers many expenses, it may not cover everything. Evaluating the cost of supplemental insurance can be worthwhile if it offsets higher out-of-pocket costs for treatments and procedures.

Since rising living costs show no sign of going back down, older adults have had to make serious adjustments to their lifestyles to make ends meet in retirement. Along the way, they’ve gained experience and advice they can pass down to those who are planning to retire in the midst of much economic uncertainty.

The most common advice from retirees is to simply save more money, with 31 percent recommending this approach above all others. Nearly 20 percent of older Americans emphasized the importance of planning and budgeting to avoid financial stress in retirement. According to 15 percent of retirees in our research, establishing these habits early in life can make living on a fixed income more manageable.

The U.S. Department of Labor echoes the sentiments of retirees in our study and recommends these tips as well:

• Know your retirement needs since most people will need at least 70 percent of their pre-retirement income to maintain their standard of living
• Contribute to your employer’s retirement savings plan
• Consider basic investment principles
• Avoid touching your retirement savings until you need it
• Put money into an IRA as you save for retirement.

While saving for retirement can seem daunting, it doesn't have to be overwhelming. For those seeking further assistance, consulting with banks or financial advisors can be crucial to ensuring a happy and relatively stress-free retirement.

In June 2024, we conducted an online poll of 724 retired Americans aged 65 or older. 54 percent were female, 43 percent were male, and 3 percent did not disclose their gender. 50 percent were age 60-69, 46 percent were aged 70-79, and four percent were age 80 and above. 32 percent were retired from their primary career and still worked as gig workers, part-time workers, or side jobs. 68 percent were fully retired and not working any extra jobs.

The monthly median spending by expense gives median spending for retirees who indicated that they spend in these categories.