Retirement Costs You May Not Have Considered

How to Plan for Unexpected Expenses in a New Phase of Life

Retirement planning involves identifying expenses, sources of income, and saving enough money to cover a certain percentage of your living expenses. However, there are a few expenses that might not be on your radar. Living expenses might be lower in retirement versus working years, while other expenses may stay the same.

However, some costs might be completely different in retirement, and this article highlights the most significant, non-obvious retirement expenses for which you'll want to be prepared.

Key Takeaways

  • Medicare will not cover all of your health care expenses during retirement and it won't cover most long-term care needs.
  • Aging in place could require home renovations you haven't considered.
  • Taxes could take a chunk out of your retirement income.
  • It's smart to set aside money for a future car.
  • Aging relatives might need your help.

Health Insurance

Medicare is a government-provided health insurance program that's available for people age 65 or older. There are various components of Medicare that each cover a group of expenses.

Medicare Part A

Medicare Part A covers inpatient hospital stays and nursing care. Typically, most people won't pay a monthly premium for Part A if they paid into the program via taxes in their working years. However, there's an annual deductible for Part A, which is $1,556 for 2022 and $1,600 for 2023.

The patient must pay medical costs each year up to the deductible amount, after which Medicare Part A covers the covered hospital and nursing expenses. Also, there are no coinsurance costs, which are shared costs for medical expenses, for hospital stays of 60 days or less.

Medicare Part B

Medicare Part B covers doctor's visits, tests, flu shots, physical therapy, and chemotherapy. The standard monthly premium for most people is $170.10 for 2022 and $164.90 for 2023. The annual Part B deductible is $233 for 2022 and $226 for 2023. After the deductible, you pay 20% for most care.

However, for 2022, the monthly costs are higher if your modified adjusted gross income (MAGI) rises above $91,000 (if you’re filing single or separately) or $182,000 (if you’re married and filing jointly). For 2023, your costs increase if your MAGI rises above $97,000 (if you’re filing single or separately) or $194,000 (if you’re married and filing jointly).

Medicare Advantage Plan

Some people opt to buy a Medicare Advantage Plan (Medicare Part C) to get their Part A and Part B coverage from a private insurer instead of through Original Medicare. These plans may also cover services that Parts A and B do not, such as dental care, eye exams, and hearing aids. In this case, out-of-pocket costs vary by plan.

These plans also may restrict which doctors or hospital members use and don't work well for snowbirds and others who live in more than one location during the year. The average monthly premium for Medicare Advantage plans is $19.52 in 2022 and $18 in 2023.

Medicare Part D

Medicare Part D is Medicare's prescription drug benefit program, which is an optional benefit administered by private insurance companies. Part D provides additional coverage for prescription drugs versus the coverage already provided by the broader Medicare program. Part D participants are typically charged a monthly premium, copays, and an annual deductible. The average monthly premium for Medicare for Part D coverage is $32.08 in 2022 and $31.50 in 2023. This is in addition to the Part B premium that everyone has to pay.

In 2022, the maximum deductible for Part D is $480 ($505 in 2023), while the initial coverage limit is $4,430, which is the maximum amount of purchases for retail drugs that are covered before moving to the following coverage phase.

The coverage phase is called the coverage gap or "donut hole," in which you'll usually pay no more than 25% of all prescription costs. However, everything that you pay counts towards your out-of-pocket threshold, which is $7,050 for 2022. Once you've spent $7,050, you'll qualify for the catastrophic phase of coverage in which you'll pay a fixed copayment and coinsurance, which for 2021 is $3.95 for generic drugs and $9.85 for brand-name prescriptions.

In 2023, the maximum deductible for Part D is $505, while the initial coverage limit is $4,660, after which you'll likely pay 25% of prescription costs until you reach the out-of-pocket threshold of $7,400. Beyond $7,400, you'll be in the catastrophic coverage phase in which you'll pay a fixed copayment and coinsurance of $4.15 for generic and $10.35 for brand name prescriptions.

Please note that if you don't file for Plan D in a timely fashion, you may be charged a penalty for the rest of your life once you do file.

For 2023, the average monthly premium for a Medicare Advantage plan is projected to be $18, which is down from the 2022 premium of $19.52. For Part D prescription coverage, the 2023 monthly average premium is projected to be $31.50 per month, compared to $32.08 in 2022.

Estimated Costs in Retirement

You can expect Medicare to cover about two-thirds of the cost of health care services during retirement, according to the Employee Benefit Research Institute (EBRI).

EBRI predicted that a man who is 65 in 2021 will need $142,000, and a woman will need $159,000 for a 90% chance of covering these costs through retirement. (Based on current average lifespans for men and women, retirement could last 17 years for a man and 19.8 years for a woman, according to the Organization of Economic Cooperation and Development [OECD].)

The EBRI assumes median prescription drug expenses. If a couple's drug expenses are high—in the 90th percentile—together, they might need $361,000.

Long-Term Care

Medicare Part A covers medically necessary skilled nursing care after a hospital stay. It also covers services such as occupational therapy, speech therapy, and physical therapy. But it does not cover long-term care when all you need is help with activities of daily living (ADL), which is the type of care many older people need, especially if they live alone.

What Your Long-Term Care Costs Might Include

  • Premiums for long-term care insurance
  • Premiums for a whole life insurance policy with long-term care benefits
  • Costs during the waiting period before your long-term care coverage kicks in
  • Out-of-pocket costs for everything Medicare doesn’t cover if you don’t have long-term care insurance 

You can estimate the costs of different levels of long-term care in your area using Genworth’s Cost of Care calculator. Genworth sells long-term care insurance and conducts an annual survey of about 20% of long-term care providers to give consumers an idea of potential costs.

Projected National Median Long-Term Care Costs for 2040

  • Homemaker services—$8,692 monthly; $104,313 annually
  • Home health aide—$9,027 monthly; $108,325 annually
  • Adult day health care—$2,963 monthly; $35,561 annually
  • Assisted living facility—$7,891 monthly; $94,689 annually
  • Semi-private nursing home room—$13,867 monthly; $166,408 annually
  • Private nursing home room—$15,841 monthly; $190,089 annually

A health savings account (HSA) funded during your working years can help you cover out-of-pocket medical and long-term-care costs in retirement.

Home Renovations 

Seniors who prefer to stay at home rather than move to a retirement community may find that their home needs modifications to be safe and comfortable. Here are some considerations if you can find a way to fund them.

Home Improvements to Consider Making As You Age

  • Exterior ramps and interior chair lifts to help you get up steps safely
  • Walk-in tubs or showers with grip bars and nonslip flooring
  • Wider halls and doorways that allow for wheelchair access
  • Lower countertops and cabinets with pull-out shelves that will enable you to reach everything easily
  • Security and medical alert systems

Costs will depend on where you live and how extensive the work is. It's not hard to imagine spending at least $10,000 on these upgrades, but that could be a bargain compared to the cost of moving.

If you're not planning to move, you may want to budget for these aging-in-place renovations on top of the usual maintenance for roofing, plumbing, HVAC, kitchen appliances, painting, gardening, and cleaning. Home improvements for health reasons, such as a wheelchair ramp or widening doorways, are also tax-deductible as a medical expense. There are detailed rules about how much you can deduct if a particular improvement also raises the value of your home, so check with a tax expert.

In addition, Medicare covers much of the cost of some durable medical equipment (DME), such as a hospital bed, a wheelchair or scooter, or a device to lift a patient.

On the more fun side, you might also want to set money aside to update your home's appearance since you may be spending more time at home than ever before.

Income Taxes

Any money you contributed to pretax retirement accounts during your working years will be subject to income tax when you withdraw from those accounts during retirement.

Accounts Whose Withdrawals Are Taxable in Retirement

Accounts Whose Withdrawals Are Not Taxable in Retirement

Accounts Whose Withdrawals Could Be Taxable in Retirement

  • Employer pensions

In addition, 50% to 85% of your Social Security benefits may be taxable if your income exceeds certain thresholds. A married couple filing jointly, for example, may owe income tax on up to 85% of their Social Security benefit if their income is more than $44,000.

Common 2022 Federal Income Tax Brackets
Tax rate Filing single Married filing jointly Filing as head of household
12% $10,276 to $41,775 $20,551 to $83,550 $14,651 to $55,900
22% $41,776 to $89,075 $83,551 to $178,150 $55,901 to $89,050
24% $89,076 to $170,050 $178,151 to $340,100 $89,051 to $170,050
Three middle-income tax brackets retirees are likely to fall into.

Table source: Internal Revenue Service.

New Vehicles

If you drive and plan to continue operating a vehicle until the day your children or the Department of Motor Vehicles forbids it, the car you own when you retire will probably not get you through retirement. 

You might experience an accident and have your car declared a total loss—which can happen from a relatively minor collision on an older vehicle with a low value. Your vehicle might get too old and unreliable and need to be replaced. Or you might need a more comfortable car than the one you have now. There's a reason you don't see a lot of 85-year-olds climbing into pickup trucks. Another reason to get a new car: You can buy one equipped with the latest safety sensor alerts, such as adaptive cruise control, automatic emergency braking, and lane-departure warnings that help compensate for slower reaction times or limited mobility.

You might want to set aside enough cash to buy a car outright. If that's not an option, budget for a down payment and a monthly car payment. When you're retired, you may still be able to qualify for a car loan based on your retirement income.


At age 65, you may be lucky enough to still have one or more parents, aunts, uncles, or siblings in your life. As they get older, they may become unable to meet all of their physical or financial needs. And if that happens, you may feel duty-bound to help.

If you can manage it, you may want to budget for a retirement that covers not just your own expenses but also provides for the possibility of assisting someone you love. Be aware, by the way, that if your loved one qualifies–and you are caring for them–you may be eligible for financial reimbursement.

The Bottom Line

Growing older and having new sources of health insurance and income means facing circumstances you never have in the past. But you don't have to go into this new stage unprepared for the expenses that might come with it. Will you be able to afford all of them?

Maybe not. And if that's the case, you can start looking into resources that might be able to help: Medicaid for health care, safe transport services for seniors who can't drive, local programs that can help with home renovations, and maybe even a reverse mortgage. The idea is to have some idea of which costs you might confront one day so you won't be caught off guard or make decisions now that you might regret later.

Article Sources
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