Many of us assume that our spending will decline in retirement. No more daily commuting costs or having to maintain a work wardrobe. Fewer (if any!) pricey business lunches. An end to withholding for 401(k) plans, Medicare and Social Security. One common rule of thumb suggests people plan on needing about 70% to 80% of their pre-retirement income to pay the bills. 

Many retirees do find that their expenses go down, sometimes even below that estimate. But others are surprised to see them heading in the opposite direction. Travel is one big reason. Uncovered medical expenses are another. Ditto for unexpected tax bills. Still another cause: Retirees simply have more free time to spend, spend, spend. 

“Overall expenses rise between 2% and 4% annually, and if retirement income is fixed, this can be a challenge 10 to 15 years into retirement,” says Wes Shannon, CFP®, managing partner, SJK Financial Planning, LLC, in Hurst, Texas.

1. Travel

To start on a happy note, your travel expenses could easily shoot up in retirement, particularly in the early years (see Budgeting for the 4 Phases of Retirement). Suddenly you’ll have the leisure to go places you’ve always wanted to see but never had time for when you were working nine to five and perhaps raising kids. Of course, your job-related commuting expenses will no longer be a factor, so whatever you were spending there each month can be applied to your new fun-travel budget.

Ways to save: Many hotels and some airlines offer senior discounts. But check before you buy: They aren’t always the best deal you can get.

Consider hotels: Senior discounts might knock 10% to 15% off the regular room rate at many chains, but better promotions are often available. Rather than requesting a senior discount up front, ask the reservations agent for the best available price on the kind of room you want. Next, see if the senior discount can be applied on top of that. Consider the senior rate alone as your fallback position.

It’s much the same when it comes to plane tickets. Southwest Airlines, for example, has special senior fares for passengers 65 and over. Again, it pays to ask a reservations agent whether that’s the best deal. A big plus of Southwest’s senior fare, however, is that tickets are fully refundable, unlike many other airline tickets these days.

Other airlines, such as American, Delta and United also offer senior fares on selected routes, generally to passengers 65 and older. It could be worth a call to ask, but, as usual, you might land a cheaper ticket with a little searching.

If you’re open to rentals and don’t mind being in the kitchen, consider VRBO (Vacation Rentals By Owner). “Offerings are typically other people's second homes in typical vacation locations,” says Bill DeShurko, CIO, Fund Trader Pro, in Centerville, Ohio. “Now that we are empty nesters and hope to pick up on our vacationing, although we could fly to more exotic destinations, we have a year planned with VRBO accommodations. Our idea of vacation is sitting out on our deck looking out over a lake, the mountains or a beach. And we look for day activities that include boating, golf, tennis and fly fishing. We never seem to not be able to find a VRBO listing.”

Travel insurance, which you’re almost certain to be offered, is another consideration. Before you automatically buy a policy for peace of mind, make sure you know exactly what it covers and which restrictions lurk in its fine print; these could keep you from ever collecting.

If you’re on Medicare, bear in mind that it generally doesn’t cover medical expenses outside the United States. That includes if you are on a cruise ship that is more than six hours from a U.S. port. Some Medicare supplement, or Medigap, policies provide for emergency healthcare coverage when you’re away from the U.S. If you have Medigap, review your policy before you pay for duplicative coverage.

It’s also worth checking your credit card agreement or calling the issuer to see what travel coverage, if any, it provides. Some cards cover such risks as lost baggage, but only if you bought your travel tickets with that specific card.

Probably the greatest edge retirees have in getting terrific travel deals is their flexibility to travel when they aren’t competing with business travelers or vacationers whose schedules are more constricted. For example, travelers going from New York’s LaGuardia Airport to Key West, Fla., could have paid as much as $890 or as little as $536 round-trip on one airline recently, depending on the hour and day they flew. That $354 difference would buy a lot of grouper sandwiches and key lime pie. For more money-saving ideas, see Retirees: Save Money On Your Long-Term Travel.

2. Healthcare

As mentioned earlier, Medicare, the federal program that insures many Americans over age 65, usually won’t cover you if you get sick and need treatment overseas. It also doesn’t fund a number of other expenses that your previous, employer-paid health insurance probably took care of. These include most dental care, eye exams, hearing aids and routine foot care, among others. So you probably should build some extra money for these services into your retirement budget. If your former employer provides any retiree health benefits, those will figure into the equation too.

“Healthcare is one of the larger budget items for retirees, especially in their later years. Understanding industry statistics in terms of healthcare expenses beyond what is covered by Medicare parts A and B is a good starting point to start saving and budgeting for future healthcare expenses,” says Mark Hebner, founder and president, Index Fund Advisors, Inc., Irvine, Calif., and author of “Index Funds: The 12-Step Recovery Program for Active Investors.”

Ways to save: If your non-covered medical expenses are substantial, one way to ease the burden a bit is by bunching them into a single calendar year and claiming a tax deduction. Don’t put off emergency procedures, of course, but if you can safely wait a bit for non-urgent dental work or a new hearing aid, you might accumulate a large enough bill to reach the threshold for claiming a deduction. Eligible medical and dental expenses are deductible to the extent that they exceed 7.5% of your adjusted gross income – a temporary, reduced threshold for seniors that just expired but can still be used for 2016 tax filing. As of January 1, 2017, all taxpayers may deduct the amount of the total allowable medical care expense that was not reimbursed for the year that exceeds 10% of adjusted gross income.

3. Taxes

Your income may decline during retirement, resulting in a lower marginal tax bracket and a smaller income tax bill. But if you have a lot of money in retirement plans, such as traditional IRAs, that are subject to required minimum distributions (RMDs) every year after age 70½, you could actually find your income and income taxes going up. “Most people are surprised at the tax hit when withdrawing from traditional 401(k) and IRAs in retirement. Roth IRAs can help soften the tax blow since those withdrawals are tax free,” says David N. Waldrop, CFP®, president of Bridgeview Capital Advisors, Inc., in El Dorado Hills, Calif. Plus, Roth IRAs aren't subject to RMDs.

Note, too, that your Social Security benefits could be taxable if your income exceeds certain limits. To find out, add half of your Social Security benefit to all of your other income, including tax-exempt interest from investments such as municipal bonds. If the total exceeds $32,000 for couples or $25,000 for singles, you may have to pay taxes on it.

Ways to save: First, if you’ve reached the age for required minimum distributions, don’t ignore them, or you’ll face a substantial tax penalty. Try to get a close estimate of how much money you’re likely to need to cover the taxes on any required minimum distributions and figure out where the money is going to come from. That could mean withdrawing more from your retirement accounts to cover the tax or taking money from non-retirement accounts, which might be taxed at a lower rate. The former is taxed as ordinary income; the latter may be taxed at more favorable, long-term capital gains rates. If this is unfamiliar territory for you, you might want to enlist the services of an accountant or a financial planner to run some different scenarios. 

Also, find out whether being of retirement age entitles you to any special breaks on property taxes where you live. You can’t assume you’ll just get them automatically, as your local tax assessor probably has no idea how old you are. The website for your state tax department is a good place to start. 

4. Shopping!

Retirement often means spending more time at home, particularly in the daylight hours. You could find yourself wondering how you ever lived with those worn carpets and dingy drapes, not to mention that circa-1970s wood paneling. You might also want to treat yourself to an up-to-date kitchen, a more luxurious bath or a separate home office where you can manage your investments or write your spy novel.

If redecorating or remodeling would make your life more comfortable, and if you can afford it, there’s little reason to deny yourself. Don’t forget, however, that retirement can last a long time, and many of us are likely to live into our 90s or beyond. Ideally, our savings should hold out as long as we do. In other words, don’t go crazy with the credit cards.

Ways to save: Fortunately, one of the great things about being retired is that you don’t just have more time to shop. You also have more time to shop around for the very best deals. So take advantage of it and enjoy.

The Bottom Line

While you take advantage of the freedom retirement brings, keep an eye on your expenses. Set a budget and cut back if needed.