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I officially retired at the age of sixty-one in the summer of 2021 after a rewarding career of four decades. Since retiring, many of my expenses have gone down.
I no longer have to spend money on retirement savings. Commuting costs and expensive suits related to office work are also completely gone.
That’s the excellent part. The not-so-excellent part is that not all of my expenses disappeared after I retired. Some even went up!
To plan for a successful retirement, it’s crucial to have a general idea of what your spending needs will be when you retire.
In this post, I will discuss the expenses you must consider in your retirement planning.
1. Housing
When you retire, housing is likely the most significant expense you’ll have. That could be true even if you paid off your mortgage.
When my wife & I retired in 2021 from our busy jobs (she was a Pathologist, and I was a Finance Executive), we sold our Illinois condominium. We moved back to the East Coast during the summer to be closer to family and friends. We downsized to our 950-square-foot condominium in Philadelphia, which we bought in 2012, knowing we’d move there once we retired.
While our mortgage was paid off (thank goodness!), we still pay insurance, real estate taxes as well as a hefty HOA (Homeowners Association fees). In our third year living in a city environment, our HOA has increased to just above $1,000 a month.
Whether or not you plan to retire mortgage-free, consider housing in your anticipated expenses. If you plan to have no mortgage payments in retirement, keep in mind that expenses, including property taxes, insurance, and home repairs, will remain.
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2. Healthcare
Healthcare costs are a significant concern in retirement as they increase faster as we age. It particularly scares me the most as I come from a family with a history of heart disease, and my wife experienced Stage 2 breast cancer in 2018. I am currently on medication due to meeting two of the three key risk factors for heart disease. Unlike the famous song by Meat Loaf from the 70s, this is when two out of three IS bad!
Medicare premiums kick in at age 65. They can be VERY confusing with the various coverages designated by letters.
The good news is that most retirees do not pay a premium for Medicare Part A hospital insurance. Medicare Part A has a $1,600 deductible in 2023 if you are hospitalized, and there are additional coinsurance charges if your hospital stay exceeds 60 days.
Medicare Part B medical insurance charges a standard premium of $165 in 2023, and most of us as high-income retirees, will pay an additional premium. Medicare Part B also has a $226 deductible in 2023. After that, you will be expected to pay 20% of the Medicare-approved amount for most of the medical services you use unless you purchase another insurance plan to supplement traditional Medicare.
Medicare Part D prescription drug plans charge a separate premium that varies depending on the method you select each year.
Additionally, home healthcare costs can be significant.
There might also be a third premium if you choose a Medigap plan that will pay some of your out-of-pocket costs related to Medicare. My advice: talk to a Medicare planner, which I plan to do next year when I turn 65.
Finally, if you plan to retire before 65, make sure to plan for healthcare with rising costs, and inflation rates in mind.
3. Taxes
Taxes are a pain in the butt even after we retire. After years of deferring taxes, you will need to pay income tax on each withdrawal from your traditional 401(k)s and IRAs.
Keep in mind that the advantage of Roth 401(k)s is that you can withdraw them tax-free in retirement.
Based on ever-changing rules, don’t forget that “Required Distributions” from tax-deferred retirement accounts are required after age 73 to avoid a stiff 25% tax penalty.
Also, remember that a portion of your Social Security benefit could also be taxable based on your level of retirement income.
4. Food
Food is a key decision point in retirement.
One avenue is that you can save money on food in retirement if you are willing to give up expensive convenience foods and take the time to cook healthy meals at home.
My wife and I have decided that we are going to enjoy retirement by experiencing the amazing restaurant scene in Philadelphia. Thus, we are eating out more often than when we worked and spending more money on food than initially planned.
We have discovered that going to early dinner “happy hours” or not ordering alcohol with our meals are excellent ways to save money on food.
5. Emergencies
Emergencies do NOT go away in retirement.
In the past year alone, we have had several large repairs to maintain our older vehicles in addition to household repairs to replace leaking windows and older kitchen appliances. An emergency fund is essential to avoid spending your savings faster than envisioned.
Like many financial experts, I recommend at least 3-6 months of living expenses. This calculation is much easier if you use some form of budgeting.
My wife and I have used an app appropriately named “You Need a Budget” (YNAB) for the past ten years. This app allows us to enter a transaction quickly on our cell phone and see how much money is remaining in any expense category. We can also run month-end reports which reflect how we are performing to our monthly budgeted targets.
6. Entertainment
Entertainment opportunities abound when you retire.
Your newfound free time in retirement provides opportunities to try new activities, but those can get expensive. Fortunately, deals for seniors abound, such as discount admission to museums and movies, and some colleges offer low or no-cost classes for retirees.
Many communities provide plenty of free or affordable entertainment to people of all ages, ranging from summer concerts to library seminars, and senior centers often provide social activities just for retirees.
One of my favorite things about retirement is spending more time with my wife. After decades of devoting substantial amounts of time due to our careers, we love discovering new offerings in our large city of Philadelphia.
We love walking to numerous city sites, such as the excellent restaurant scene (refer to #4 above), sporting events on Broad Street (GO Phillies & Eagles!), and concerts and other world-class performances at the beautiful Kimmel Center, which is only one block from our condominium.
We also have been able to enjoy the outdoors by bicycling as well as picking up our new retirement sport of pickleball, which is a racket or paddle sport that combines elements of tennis, badminton, and ping pong. When gas prices rose dramatically in 2022, we were able to stay young by walking more often and joining various group functions such as walking food and history tours.
7. Travel
Travel is something we all dream about when we are thinking of life in retirement. Retirees finally have time to travel as much as they want, as the key limiting factor is your savings. Senior citizens (and particularly, AARP members) often enjoy discounts on hotels and rental cars. There are also creative ways to travel affordably if you are willing to stay with friends or swap homes with someone else. Retirees have the advantage of being able to travel during weekdays and off-peak times, which could save you money on airline fees and hotel stays while helping you avoid crowds.
My advice is to set a date to fulfill your dream vacation.
For example, my wife and I enjoyed a dream vacation to Hawaii during our initial year of retirement in 2021. Last year, we completed a ten-day guided tour to four Canadian cities in the fall of 2022 with eleven interesting and delightful couples from across the U.S., which was a wonderful and fun-filled vacation adventure.
YES – it was expensive but well worth it!
8. Education
If you’re an early retiree, you may have yet to put your kids through college. If you plan to help them pay for college, make sure to plan ahead by funding 529 Plans or by assisting them in applying for financial aid.
If you have kids in elementary or high school, you may live where private schools are commonplace and a borderline necessity. Those are some expensive years!
Even if your children have completed all the paid education or if you don’t have children, you may still want to set some money aside for education.
With time on your hands, the desire to learn something new may be more vital than ever. You may want to learn new skills and choose to buy some education via community ed, community college, or possibly pursue a full-fledged degree at a university.
9. Legacy
Legacy is something we need to think about in retirement.
Some retirees would like to leave financial gifts to their children, grandchildren, or other heirs or pass on treasured items such as jewelry, furniture, or other heirlooms.
Think about whether you plan to include any charitable giving to meaningful causes. Make sure your wishes are clearly written so that your plans can be realized. My wife and I have recently collaborated with our financial advisor to create both an estate plan for charitable giving as well as an Irrevocable Life Insurance Trust (ILIT), which ensures that the benefit from an insurance policy can avoid the dreaded estate taxes as well as fulfill our wishes to share the proceeds with family members.
Aiding family members seems like a great idea as you settle down in retirement…but be careful. Looking at the nest egg you have built up over your working years, it may seem that you have enough funds to support more than just your household.
If you have done well at setting aside money to last for many years, do not be surprised if family members request a loan or financial help. You may be asked to help grandchildren pay for their college education or to provide money for adult children to make a down payment on a house. With current mortgage rates as high as 8%, family members may need additional funds to qualify for a mortgage.
Before sharing funds with other family members, it can be helpful to review your budget or discuss it with your financial advisor. While my wife and I are certainly willing to help other family members in need, we do so with discretion and in alignment with our monthly/annual budget constraints. Also, we have shared the ILIT concept with family members to make them aware of our estate planning concepts that will impact them upon our death.
Final Thoughts
While many Americans look forward to having more free time in their retirement years, some find themselves in a gloomy situation they were not expecting.
Overspending, a lack of planning, and financial missteps can quickly make the retirement dream a nightmare. Per my analysis of my budget reports (using the app YNAB discussed above in item #6), my wife and I are spending about 5% more than we had anticipated.
There are valid reasons for this overage, as in our retirement, we are eating out more often, enjoying nearby shows and concerts, attending more sporting events with local teams making championship runs to the World Series and Super Bowl, and dealing with the past year in which we experienced the highest inflation in over forty years.
My final piece of advice after this sobering article on expenses that need to be considered in retirement is two-fold:
- Planning is the key to a successful retirement.
- Enjoy retirement as it is a six-month holiday twice a year!
27 thoughts on “9 Expenses That Stay in Retirement”
It certainly pays to know about Medicare. I considered a Medicare disadvantage plan but decided against it. As a health care professional, I felt that I had worked long and hard to take care of people and I wanted good health care for myself. When I developed cancer four months after I retired, and wanted the best doctors I could find, I was lucky to have an institution within reach at Memorial Sloan Kettering Cancer Center. I get top of the line excellence, respect, and compassion. Great thing to be sure. My sister also with cancer, has a Medicare Disadvantage plan. She gets good, but not excellent, respect and compassion non existent. The best I can do for her is to research and encourage her with self advocacy. I also am taking a drug Lynparza. Retail cost is 15K monthly, covered by my part D plan which is costing me 13.00 a month. Fortunately the 5% copay in the catastrophic range goes away this year, otherwise my meds would be $800 a month for Lynparza and another $150 for the Creon. A 3 month supply costs 14,000. I am concerned about efforts to trash Medicare and push everyone into Medicare Disadvantage plans. I am not sure what this will do to the “flagship” institutions like MSKCC who do not accept Medicare Disadvantage plans. Who knows what will happen to the copays for drugs. I would have been financially significantly better for working longer, but I think I would be dead if I had been working right up until I was diagnosed with cancer. I needed to rejuvenate. If I hadn’t I never would have been able to stand up to the 6 months of chemo treatment that I needed. I talked to my financial planner and discussed the fact that my medical expenses were significantly higher than I expected but my life would likely be shorter. He thought we would work on another projection. They always do a projection out to age 100. He said we could rework things. Fortunately things are OK right now and I am staying on track with my original plan. If things are not going well and a short prognosis is clear then I will take another look at drawing down my retirement nest egg sooner. I am glad I got long term care insurance when I was able to have it. Also keep in mind that long term are in a nursing home is very, very pricey. If you want to be sure of leaving something behind a “Medicaid Trust” irrevocable trust would shield assets from the Medicaid spend down requirements. All resources must be exhausted before Medicaid will pick up long term care. A spouse can only keep a home and 70K. There is a 5 year “look back” for Medicaid so the irrevocable trust needs to be created in the right time frame. Definitely not something to leave for the last minute. Wishing everyone the best of health in retirement.
Carol,
I hope you are on the mend. MSKCC is an amazing institution and I spent a month there training in the final year of my plastic surgery residency. That’s where I would go if in needed cancer treatment. They truly only hire the best of the best!
Excellent overview. Thanks for your candid discussion. My wife and I are both physicians with successful academic careers. We got tenured and became full professors almost two decades ago. We too have funded future college expenses for our two grandchildren. We retired in 2023. Twice a year we review our financial situation with our advisors who tell us where we stand. We also contribute a significant amount to charity which is our way of saying thanks. A key contributor to financial security is to have your spouse on board for all financial decisions. A thoughtful , smart and understanding parter is a key guarantor to financial stability and success.
Romesh Khardori, MD., Ph.D
(Nancy Khardori, MD., Ph.D)
You’re welcome Romesh as it sounds like you and your wife are well on the path to a successful retirement. I strongly agree with your importance of having a thoughtful spouse on board. Here’s a fun concept from my book, CHECKMATE, for others to try:
“While not overly romantic or sexy, my wife and I have monthly “budget or money dates” where we review our financial statements together and how we are progressing with our overall retirement goals. We decided to make our monthly money dates more fun as we usually have a nice dinner with a bottle of wine. My advice is to make it a fun habit that you will enjoy.”
I am perplexed about $1000 HOA fees for a condominium. Our new home has a HOA of $400.
I had retired and decided to work PT . This has helped in maintaining intellectual stimulation and financial stability. We will be moving to a tax friendly state in 6 months. My wife has a high end medical device position.
We could easily stop working. Our goal is to avoid any pitfalls during the golden years and build some legacy for the children.
We have given up a lot and saved judiciously to avoid financial crisis.
Health, dental and other major expenses needs to be taken in consideration.
Thanks Shailesh for your comments. While it seems high, our Center City Philly condo will charge $1,050 for our HOA in January, which includes 24-7-365 concierge and doormen as well as a full floor of amenities (e.g. swimming pool, hot tub, fitness center, etc).
I love that you & your wife have sacrificed in order to build up your legacy for your children. Like you, I agree that PT work in my retirement (e.g. author & freelance writer) keeps us sharp as well as provides some extra money for unexpected expenses.
Enjoy your retirement!
Greg,
My wife and I used to live on Clinton Street while we were both finishing our residency/fellowship training in Philadelphia at Jefferson and Temple University hospitals. We loved living there and the fact that we could walk to so many great restaurants and bars! Philly is very underrated as far as the restaurant scene goes. I’m jealous!
David
Thanks David as I’m amazed at the array of great restaurants here in Center City. To make it even more attractive, we just started two weeks of “restaurant week” specials where over 100 restaurants offer great deals for lunch & dinner! Take care.
Thanks for that great review! I’m 71, but still working part-time, in order to have the funds for home maintenance and improvements that you had mentioned. I’m 41 years post-residency training, and have never stopped working, as least part time. Haven’t done on-call in 5 years, I set my own schedule, take 2 months off twice per year, and avoid difficult cases. Locums pay has gone way up the past 2 years, but that’s too stressful, so I quit that last year, after 5 years of Locums work. I’m back to my old (original) work hospital, and to a new surgery-center, where everyone knows me & where I am treated VERY well (vs. the Locums ‘gigs’…. some horror stories with Locums!) Now it’s like a home-coming every day I work, and it is one of my social outlets. I’d say don’t fully retire unless you have to.
All of these worries cease to exist if you have saved sufficient funds. You will need about five million to retire comfortably. This is easily achieved by saving and conservatively investing about $55,000 per year for a thirty-five year career assuming a conservative growth of 5%/yr. All of this in after tax dollars. For a physician whose spouse is also an employed professional this is not a difficult goal.
While I agree with your initial statement Jack Wagner, I would take issue that a successful retirement is easily achieved as you indicate. Not everyone is as disciplined as you indicate by putting an annual amount in savings for a long period of time (35 years). Most folks (even high earners) tend to spend money on material items (nice house, sports car, high-end vacations, etc.) before even thinking about the proper planning that goes into a successful retirement. Congratulations Jack on achieving your goal of $5 million as that’s a lofty savings goal for many couples!
All it does is take discipline. Every resident class gets a lecture at the end of the year. The take home message is “ live like a resident for a while longer!” ie save your new big paycheck
Discipline! Discipline! Discipline!
One thing I would add. Is play with the time value of money formula. It’s right there on everyone’s excel spreadsheet. Plug away and be amazed at what saving early does for you
My wife and I are one year into full retirement at 73. We have learned a few things.
The benefits of maximizing your retirement contributions and savings for expenses like college for the kids early on are amazing. With automatic deductions you don’t miss the funds.
Our required minimum distributions are based on a 20+ year projection from Social Security. That means for the early years you are looking at a roughly 3% withdrawal, which is quite likely to be replaced by the return on the remaining principal.
Yes, taxes are high and go higher at an alarming rate. We love our house in MA but can see downsizing to someplace where the property taxes are less than $13,000 a year, income taxes are low or non-existent and there is no inheritance tax at some point.
Our kids are in their 40s, but the grandkids are 6. We made sure our kids got out of college with no debt. That was a huge boon to them. Their friends, even veterinarians and Ph.Ds are still struggling with that debt. Now we have put a pretty good chunk into 529s for the grandkids. In both cases we saved early in anticipation of the expenses and the results were impressive.
One of the hardest things we have faced is the reality that we did all that saving in order to fund the rest of our lives, which are finite. That is a big problem for retirees. We are supposed to be dipping into the principal. According to the numbers we can. Best to do it while we can still do the things we dreamed about for 40 years.
Congratulations Bruce Bender on your successful retirement as you and your wife have made the necessary cost-saving decisions to fund your children’s college education as well as funding the 529s of your grandchildren. While downsizing may make sense in the future, I truly wish you and your wife a healthy & enjoyable retirement. As I say in my book, “retirement is a 6-month vacation, twice a year!”
While I’m not disagreeing that more money has advantages, the amount needed is no where near that.
We are both retired physicians 64/66. Our portfolio is under $2 million. No debt, with a paid off, age in place home in FL.
We vacationed 15 weeks last year and have that in our budget going forward. We have a boat that we plan to do “The Great Loop” on next year, rent RVs and travel international and take cruises. When our Social Security fully kicks in at 70 it will cover ALL of our base living expenses. Our portfolio will then be for discretionary expenses only.
We tend to prefer a middle class lifestyle, looking for bargains, eating at home, modest hotels or short term rentals, older cars, off peak travel etc. A dollar can go WAY further in retirement. We did a lot of pre planning beyond finances.
We tried the rich lifestyle when younger, and felt it wasn’t worth the money in retirement. It didn’t add better experiences, just cost.
We know plenty of docs worried about having “enough”. Cutting needless expenses is way more efficient, especially over a 30 year retirement!
Thanks Randolph as I commend you for doing so many things right in preparation for retirement: no debt, a healthy portfolio, living a frugal, not lavish, lifestyle and lots of retirement planning. As you indicate, reducing one’s expenses in retirement is a great way to enjoy this phase of your life for over 3 decades!
You are welcome John Wright as I’m pleased you enjoyed my article. Congratulations on achieving a PT position in retirement that helps fund some of your home projects as well as makes you feel valued. I agree that PT work for me in retirement (e.g. author & freelance writer) is a great boost to your retirement in many ways. Take care John!
Dr. Wright,
I am on a similar trajectory. My retirement plan is to not completely retire! I love to work and my feeling is that the moment one retires, is the point that one starts worrying about money. Did we save enough?, will it last?, etc. If you are still working, then you don’t have to worry about these issues. And to those who talk about travel… don’t wait until retirement to go wherever in the world you wish to go! If you wait, you may be too old, lame or dead! There is nothing I want to do that I’m not already doing that I need to retire to do!
Thanks David as I love your thought process that we shouldn’t wait for retirement to enjoy the finer things in life (e.g., travel). If a person is physically able and they enjoy their work, there is nothing wrong with continuing to work in retirement. I hope you continue to enjoy your work and it allows you enough flexibility to travel.
Nice and important article. These are all unknown. You can add insurance to the list. Long term care insurance and insurance for you car and house keep on going up. Also study annuities closely. The problem with them is that you will get the same monthly payment every year and no help when inflation goes up. Those thinking about retirement better heed this article.
Thanks Arlene as your inclusion of insurance-related topics is an excellent addition to retirement planning. My wife & I bought our long term care insurance in our 50’s…thanks to great advice from our advisor.
One of the costs that surprised us with Medicare, was the increased cost of Part B and D, if your earned income goes above a threshold, and that income calculation is for 2 years prior to turning 65. Decreasing cash flow at age 63, converting some 401 K or SEP to Roth each year we are below the threshold, helps so we can use the Roth if we reach the threshold in years with high expense (roof and new car last year) can really save quite a bit. I initially calculated that it was a wash to convert part of our 401K to a Roth, but this significant increase in Medicare cost for both of us makes having some conversion to Roth in years we spend less, worthwhile.
Thanks N Karr for your valuable insight into the craziness of Medicare costs & related 401k conversions. My advisor has strongly suggested that we speak to a “Medicare expert” next year before we turn 65.
It’s hard to believe 2 professionals need a “Medicare Expert,” especially one being a retired pathologist. Be clear: Advantage plans limit your hospital and physician choice. The “letters” for supplemental simply assure all benefits are the same across carriers. Choose what you think is important.
I am 77, retired as an ER doc at age 68. I live in California, which certainly has a reputation as being expensive (it is.) But I’m amazed a 950 sq ft condo in Philadelphia has an HOA fee of $1000/month. That’s my property tax in CA for a 3400 sq Ft house in an expensive beach community. Prop13!
You’re right about travel. I love it, but it can add up. Eating out has gotten crazy expensive, so we tend to have friends over and share chores. I’ve found that with a decent income and good planning (and some luck) retirement is a real blessing.
Congratulations Rich Guess on your retirement as I hope you’re enjoying your first decade of retirement. Our Philly condo will charge $1,050 for our HOA in January, which includes 24-7-365 concierge and doormen as well as a full floor of amenities (e.g. swimming pool, hot tub, fitness center, etc).
Being a bean counter turned author has made me very aware of the many things I don’t know, such as navigating the murky waters of government run programs such as Medicare. Thus some advice from field experts is worth the cost to us.
As you state, retirement is a blessing & to be enjoyed by all!
Can I get the name of the Canadian tour?
Hello Emma as this amazing tour of 4 Canadian cities was through the Tauck Tour group. Enjoy!