The Hidden Costs of Retirement: What you Might be Overlooking

By Callie Morgan, CFP®

When most people think about retirement, they envision travel, relaxation, and time to enjoy life on their terms. However, many retirees are caught off guard by the hidden costs that can erode even the most well-planned nest egg. Retirement is not just about reaching a savings goal; it’s about preparing for the unexpected. Healthcare, inflation, and long-term care are three of the most underestimated expenses in retirement. 

Healthcare Costs: The Elephant in the Room

Many retirees assume Medicare will cover most of their healthcare needs. While it does provide a strong foundation, Medicare only covers about 60% of total healthcare expenses. According to the Milliman report, a healthy couple entering retirement at age 65 who expect to be in retirement for 25 years should expect to spend around $600,000 on healthcare costs. To cover these future healthcare expenses in today’s dollars, the couple would need about $400,000 in savings.¹ If the couple plans to retire before reaching the age of 65, when Medicare is first available, they would need to have significantly more saved since they would cover 100% of healthcare costs until qualifying for Medicare. Contributing factors of medical costs include Medicare premiums, deductibles/co-pays, prescription drugs, vision, hearing, and dental care, as well as inflation costs outpacing general inflation.  

Planning Tip: Budget at least 12-15% of your retirement income to healthcare needs and consider a Health Savings Account (HSA) during your working years to build a tax-advantaged cushion.    

Inflation: The Silent Wealth Killer

Inflation rarely makes headlines unless it spikes dramatically, but it can significantly diminish purchasing power, especially over a 25- to 30-year period. A modest 3% inflation rate can cut buying power in half in about 24 years; or, in other words, a week’s worth of groceries that cost $100 today will cost nearly $181. Rising costs of housing, groceries, utilities, healthcare, and travel are inevitable, and if not carefully evaluated during the financial planning process, one’s standard of living may decline drastically.  

Planning Tip: Build inflation protection into your portfolio through investments such as equities, bonds, and tangible assets. Avoid over-relying on fixed pensions or annuities without inflation riders and plan for longer retirement horizons. Many retirees live 20-30 years post-retirement, and assets need to last and grow.

Long-Term Care: The Cost No One Wants to Think About

No one likes to imagine themselves needing assistance with daily activities like bathing, dressing, or eating. Still, statistically, nearly 70% of people over the age of 65 will need some form of long-term care in their lifetime.   Whether the care is needed at home, in an assisted living facility, or in a nursing home, the costs can be anywhere from $60,000 to over $100,000 annually for care.   

Planning Tip: Consider evaluating long-term care insurance, hybrid life/long-term care products, or establishing a specific reserve for care. Having a plan in place can protect your assets and give your family peace of mind. 

Conclusion

Retirement is more than a financial destination; it’s a lifestyle change that requires adaptability and foresight. By planning for the hidden costs today, you can avoid unpleasant surprises tomorrow. A comprehensive retirement plan should address healthcare, inflation, and long-term care as core components of your strategy. 

If you have not factored these risks into your plan, now is the time to have a conversation with a financial professional. Reach out to a Southside Bank Wealth Management and Trust Officer today to learn more.

¹https://www.milliman.com/en/insight/retiree-health-cost-index-2024

²https://www.singlecare.com/blog/news/long-term-care-statistics/#:~:text=Roughly%2070%25%20of%20people%20age,term%20care%20during%20their%20lifetime.

The information provided in this article is for general informational purposes only and should not be construed as financial advice. Before making any financial decisions, it is strongly recommended that you consult with a certified financial planner™, attorney, accountant, or another trusted financial professional to assess your individual circumstances. 

We want you to know that investment products provided by Southside Wealth Management & Trust: Are Not Insured by the FDIC or Any Federal Government Agency | May Lose Value | Are Subject to Risk | Are Not Bank Guaranteed | Are Not Deposits