5 Big Expenses to Prepare for in Retirement

Whether you’re nearing retirement or just getting started saving for a retirement that’s years away, it’s easy to underestimate how much you’ll need to live comfortably after you retire. In fact, it’s likely that your retirement years even present expenses and costs you never even considered when you were younger.

So, make sure you’re prepared for the biggest expenses to expect in retirement.

1. Housing

Housing is the largest spending category for every age group, and retirees are no exception, according to a 2019 report from the Employee Benefit Research Institute (EBRI). The report found that people ages 50-64 had a median cost of $25,000 annually for housing expenses in 2017.

People ages 65-74 had a median cost of $21,000 to keep and maintain a roof over their heads, and the median housing expenses cost for people 75 and older was around $18,000 on housing expenses annually, according to the EBRI report.

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2. Healthcare Expenses

Even with Medicare covering many medical expenses and healthcare costs, a retired couple aged 65 or older would need around $325,000 in savings to cover health insurance premiums and median prescription drug expenses in retirement, according to a 2020 study conducted by the EBRI.

Health care expenses can add up fast when you include Medicare supplemental insurance premiums and out-of-pocket costs for prescription and over-the-counter drugs, hospital care, lab tests, optical and dental care and medical supplies.

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3. Long-Term Care

While Medicare Part A pays for up to 20 days in a skilled nursing facility after a hospital stay, the government health insurance program doesn’t cover long-term care in those facilities or an assisted living community. For many people, it wouldn’t take more than a year or two to drain retirement savings in order to pay for a nursing home.

The annual national median cost for an assisted living facility is about $51,000 year, according to the 2020 Genworth Cost of Care Survey. The national median cost for a private room in a nursing home is $105,000. Home health aide services are costly as well, with a national median cost of around $55,000 annually.

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4. Long-Term Care Insurance

One way to protect yourself from devastating healthcare, medical or nursing home expenses is to purchase a long-term care insurance policy. Generally, long-term care insurance offers coverage for an extended nursing home stay, although some policies may include assisted living costs, in-home skilled nursing or help with daily living activities such as bathing and dressing or adult daycare. Long-term care insurance isn’t cheap, however.

The annual premium in 2019 for a long-term care insurance policy with an initial pool of benefits of $164,000 (reaching $386,000 at age 85) was $1,925 for a 60-year-old man and $3,000 for a woman the same age, according to the American Association for Long-Term Care Insurance, a national organization and resource for consumers and insurance professionals.

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5. Transportation

Once you retire, you’ll no longer have to drive to work, which means your transportation costs will probably decrease. However, transportation costs – car payments, vehicle insurance, gas, maintenance and repairs – could still be a large annual expense in retirement, especially if you’re making car payments. If you become unable to drive, you may have to pay public transportation or rideshare costs.

The EBRI study found that for people ages 50-64, transportation accounted for around13% of annual spending. Transportation costs were about 12% of annual spending for those between the ages of 65-74 nearly 10% for ages 75 and older.