Why your expenses may increase in retirement
When you think of your retirement, you may imagine having your mortgage paid off and your kids out of the house. This would mean two big expenses are now off your plate. And you’ll likely spend less on other things in retirement, too. According to the Bureau of Labor Statistics’ (BLS) Consumer Expenditure Survey, people over 65 years old spend less on clothing, entertainment, alcohol, and pets.1 For decades, common retirement planning advice has been that you need to have enough retirement savings to replace only 80% of your pre-retirement income. The logic of that advice is that your expenses decline in retirement, so 80% should be enough to maintain your lifestyle in retirement.2 But do retirees’ expenses really decline? They may not. While you may spend less on some things, you’ll likely spend more on others.
Financial professionals caution that one of the biggest myths of retirement is that you will have lower expenses in retirement, when in fact, most often, living expenses will increase as now you have the time to travel, as well as pursue hobbies and interests that you didn't have time to enjoy before when you were actively working. Pre-retirement, you typically spend more money on a weekend — you go out to dinner, play golf, travel, shop, etc. Every day in retirement can be like a weekend.
What you may spend more on in retirement
According to Guardian’s Retirement Redefined report, 27% of retirees are surprised by how high their expenses are in retirement.3 With additional free time, retirees may end up spending more on fitness, travel, and meals out. Retirees are also likely to spend more on charitable giving, moving, and health care.4 And health care may be one of the biggest expenses. On average, a 65-year-old today may need to spend $172,500 on health care expenses in retirement.5 The cost of health care can be highly underestimated. You may have unforeseen medical expenses later in retirement, and many people may not see these medical expenses coming because they have an expectation that they’ll remain healthy in their post-career years. Nearly half of retirees say they thought they’d be healthier or in better physical health in retirement.6
Taxes are another area that can surprise retirees. People are often told they’ll be in a lower tax bracket in retirement, but that may not be the case. Every dollar that's withdrawn from a qualified retirement account is considered taxable income. One hundred percent of it is taxable at ordinary income tax rates. So, even though you're not actively working in retirement and have earned income, every withdrawal from your retirement account will be taxed at ordinary income tax rates, which can be one of the many unforeseen expenses in retirement.7
Other unforeseen expenses are ones that are hard to even imagine right now because they don’t yet exist. Things change very quickly with technology these days so new products or services may come about in your retirement. Most people don't consider the countless future expenses there will be that they can't even anticipate now that come at a cost.
Inflation impacts all of these future expenses, making them increasingly more expensive as your retirement continues. Inflation can be like a stealth tax. Although gradual, it can have an exponential adverse impact on spending power. Over time, you may realize how rapidly the value of your money is eroded with the ongoing impact of higher inflation, prices, and costs.
How to plan for higher expenses in retirement
Thinking ahead is vital when it comes to retirement planning. You’ll want to decide what kind of lifestyle you want in retirement and then budget for more than you think you’ll need. The top two financial regrets among retirees are not saving enough and not starting to save sooner.8
Making sure you are saving a percentage of your income and earnings during your working years can help build a reserve of liquidity that can service lifestyle, emergencies, and opportunities in retirement. Having ample savings can help provide a financial cushion for whatever life throws at you in retirement, whether that’s high inflation impacting the costs of goods and services, medical costs, or needing to support children and/or parents.
It’s also a good idea to get help with your retirement planning. Working with a financial professional, like me, can help to ease stress. One-third of retirees with low emotional health regret not working with a financial professional to prepare for retirement.9 I can walk you through several retirement scenarios that may play out and help you better prepare for all of them. I can also assess your situation and make recommendations on products that may help make your retirement dreams a reality.
The moral is: Retirement is only going to be what you envision, if you plan correctly for it. Simple planning now can help you later to live with less stress and more freedom.
Disclaimer:
1 Bob Niedt, Nine Things You’ll Spend Less on in Retirement, Kiplinger, June 6, 2025, https://www.kiplinger.com/retirement/602328/things-youll-spend-less-on-in-retirement
2 Jacob Schroeder, The 80% Rule of Retirement: Should This Rule be Retired?, Kiplinger, January 24, 2025, https://www.kiplinger.com/retirement/the-80-percent-rule-of-retirement-should-this-rule-be-retired
3 Retirement Redefined, Guardian’s 14th Annual Workplace Benefits Study, 2025
4 Bob Niedt, Nine Things You’ll Spend More on in Retirement, Kiplinger, June 6, 2025, https://www.kiplinger.com/retirement/602262/things-youll-spend-more-on-in-retirement
5 How to plan for rising health care costs, Fidelity, August 12, 2024, https://www.fidelity.com/viewpoints/personal-finance/plan-for-rising-health-care-costs
6 Retirement Redefined, Guardian’s 14th Annual Workplace Benefits Study, 2025
7 Information gathered from Michele Lee Fine, a Guardian Elite Financial Professional and Founder and CEO of Cornerstone Wealth Advisory, January 23, 2025
8 Retirement Redefined, Guardian’s 14th Annual Workplace Benefits Study, 2025
9 ibid.
Material discussed is meant for general informational purposes only and is not to be construed as tax, legal, or investment advice. Although the information has been gathered from sources believed to be reliable, please note that individual situations can vary. Therefore, the information should be relied upon only when coordinated with individual professional advice.
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