10 biggest expenses in retirement

You might think that your big expenses in retirement will be green fees at golf clubs, spa fees at that resort in Crete, and taking the kids out for avocado toast on the weekends. This may be true. But some of your biggest expenses may surprise you, because you’re already paying for them.

The combination of everyday expenses and extraordinary expenses is what people find difficult to balance in retirement

“Lifestyle creep in retirement is real,” says Nick Covio, a certified financial planner in Costa Mesa, California. He says the spending most people make during their working years doesn’t suddenly change in retirement. Planning years in advance to try to maintain a reasonable lifestyle in retirement requires a strong sense of how much you’ll need to save and accumulate.

AARP wants to help take the guesswork out of something critical to your financial future. So we reached out to four certified financial planners and asked them for their thoughts on the obvious — and not so obvious — things retirees are most likely to spend their money on. We also asked them why and how to best plan for this spending.

Here are the top 10 things retirees are most likely to dig into their portfolios

1. Health care

Of all the spending categories in your retirement, this one – over time – is likely to be the biggest one. If you’re reasonably healthy, health care spending will typically be relatively low in retirement, then jump as you age into your 80s and beyond, says Eric Ross, a certified financial planner in Cincinnati. These expenses are often lower for the husband, he says, because the husband usually dies first and sometimes relies on his wife to assume many caregiving duties. This means that the surviving spouse will often have to pay for their own care, which tends to vary in different areas of the country.

Meanwhile, health care costs have seen — and will continue to see — inflation rates faster than any other spending category, says Craig Toberman, a certified financial planner in St. Louis. That’s why health care costs are expected to rise 5% annually over the next 30 years, twice the rate of other expenses. He encourages clients to be mindful of their “lifestyle” retirement spending (such as restaurant meals, travel, and online shopping) in their 60s and 70s so that the money is still there to pay for rising medical costs in their 80s and 90s.

2. Home maintenance

If you plan to stay in your home for at least a significant portion of your retirement, you’ll likely see your home maintenance costs jump significantly, Ross says. This is because you will likely have to hire services to take over some tasks that you have been doing for years. This includes hiring professionals to do everything from mowing the lawn, cleaning gutters, washing windows, and cleaning the house. “Something as simple as using the stairs as you get older is often not a good idea,” he says.

3. Travel

Retirement travel costs will vary not only based on where you go and where you stay, but also who you bring with you, Ross says. “Do your adult children join you on these trips, and do you pay for everyone’s trip?” poses.

Typically, you should plan to travel much more in early retirement and much less — or not at all — in the later years of retirement, Toberman says. For this reason, he suggests, people who set aside money for travel throughout their retirement but then cut back on their travel for health reasons may find a small “safety net” they can fall back on to cover medical costs.

4. Transportation

This is one of the most important areas of retirement spending but one of the least considered. As they age, retirees increasingly rely on others to help them get from one place to another, says Ralph Bender, a certified financial planner in Temecula, California. This could be an Uber ride to a doctor’s appointment or a taxi ride to the grocery store and back. “Transportation will always be expensive,” he says.

Even people who buy a new car before retirement will face multiple transportation costs, ranging from car payments to maintenance to gasoline and insurance, Bender says. If you choose to retire in a remote area, your transportation costs will likely be much higher — and you need to take that into account, he says.

5. Facilities

Your utility costs are one of the few expenses that will have to go south in retirement. For one thing, you typically no longer have to pay for long baby showers or cook at all hours of the day and night, Toberman says. He also adds that people tend to downsize their homes, which requires less heat and air conditioning. Until then, the rates that utilities charge to all customers will continue to increase annually. For this reason, Bandar points out that installing solar panels with batteries can reduce high electricity bills.

6. Fitness and wellness

There is one area where financial planners agree that retirees will get the most out of their investments, and that is… People who invest in health and wellness typically have lower medical costs, Ross says. This could be anything from gym memberships to yoga classes, Peleton bikes, and even quality sneakers.

The more retirees spend on fitness and wellness, the less they spend on medical costs, Toberman says. He recommends that retirees allocate up to 10 percent of their total monthly spending to health and wellness, which he says can include anything from personal trainers to nutritional supplements to home exercise equipment. “It’s not that hard to spend $500 a month on this, and there are much worse ways to spend money,” he says.

7. Children and grandchildren

Spending for children and grandchildren can be as simple as a Starbucks gift certificate, as lavish as a trip to Disney World, or as grand as a large contribution to your 529 student’s grandchild’s savings plan. In almost every case, it’s going to be more than you think, Ross says.

It may also be counterintuitive, says Toberman, because people tend to overspend on their first grandchild. Then, when the next grandchild comes along, or perhaps more, they will likely try to match the same amount even if they can no longer afford it. So, Toberman advises, be especially attentive to spending on the first grandchild.

8. Taxes

Although it seems like taxes may go down when you retire, that’s not always the case, Toberman says. The key, he says, is to try to plan for taxes before retirement. What’s more, he says, as the federal government looks for ways to reduce the federal deficit, it will likely lead to higher taxes.

It’s wise for retirees to keep their retirement funds in IRAs, Roth IRAs and brokerage accounts so they have the flexibility to respond by paying taxes each year in the most tax-efficient way, Ross says.

9. Charitable giving

Some people who consistently donate to charities while they work tend to step back from charitable giving once they retire, Ross says. Then, when they feel more secure in their retirement, they may bounce back and give more.

But others actually increase their charitable giving in retirement because with proper planning, after age 72, they can donate directly to charities from IRAs on a pre-tax basis, essentially allowing them to give more, Toberman says.

10. Professional assistance

Then there are the expensive financial upsides. These are financial advisors, estate planning attorneys, and accountants whose job is to help retirees with their finances as they age. Yes, it’s expensive, but it’s very important to get these relationships together before you retire, Ross says.

**Content published with permission from AARP and originally published on aarp.org.

Read more about retirement done right at Signals A Z.com.

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