4 retirement expenses that may surprise you (but you can plan for!)

When it comes to planning for retirement, most of us are probably planning to save money for basics like housing, transportation and food. But there are other costs you may need to cover. Saving for the fun stuff like travel is fine (you’ve earned it after all!), but unexpected retirement costs can add up quickly and could impact your retirement plans.  

What kind of expenses are we talking about? Here are four to consider.

1. Healthcare in retirement

Generally, those who are 65 are eligible for Medicare—but keep in mind this healthcare program doesn’t fully cover everything (visit Medicare.gov for coverage details). Even when it comes to the hospital and medical expenses Medicare Parts A and B do cover, many people may still benefit from supplemental health insurance, as well as prescription drug coverage. A few examples include:

• Medigap. This is extra insurance you can buy from a private health insurance company to primarily help pay your share of out-of-pocket costs in original Medicare. Medigap is also known as “Medicare Supplement Insurance.” Medicare Advantage Plans (also known as Medicare Part C) are another option for expanding coverage beyond basic Medicare, and can wrap in prescription drugs, dental and/or vision. For more details, visit Medicare.gov.

• Medicare prescription drug coverage. This optional coverage can help pay for prescription drugs. To sign up, join a Medicare-approved plan (also known as Part D) that offers drug coverage. Each plan comes with different costs and can vary in specific drugs covered, so do a little comparison shopping. Visit Medicare’s drug coverage webpage for more details.

• Health Savings Account (HSA). If you’re working and currently have a high-deductible health insurance plan (an HDHP), you can open an (HSA) to save money to help pay for qualified medical expenses. For federal (and typically state) taxes, an HSA allows for a tax deduction at contribution. Earnings are not taxed as the account grows, and “qualified” distributions are also not taxed. Learn more and review eligibility requirements.

As you plan for your healthcare needs in retirement, don’t forget to consider long-term care expenses, which Medicare often does not cover. Long-term care includes services and support for your personal care needs.

2. Taxes in retirement

You typically need to pay income taxes on your retirement account withdrawals—unless they’re in a Roth IRA or Roth 401(k) and you’ve followed IRS rules. Also, depending on your income level, you may have to pay federal taxes on a portion of your Social Security benefits (up to 85%). Some states also tax these benefits to varying degrees.

Tax planning can be especially important in your retirement years, when important decisions need to be made about generating your “retirement paycheck” from Social Security, pensions, IRA distributions, etc. Your financial advisor or a tax professional can help you learn about tax planning strategies that could save you on taxes in retirement.

3. Car repairs and home maintenance

Unexpected expenses like car and home repairs can pop up in retirement. The bill resulting from “maintenance” car service can often feel like it’s more than expected; and you never know when that emergency light will come on. In addition, replacing a major home appliance can also come with significant cost, impacting retirement savings.

Making sure you have an emergency fund in place to support your needs and to deal with these expenses can be more important than ever in your retirement years. After all, you don’t want to pull money out of investment accounts at inopportune times just to cover these types of expenses.

4. Boomerang kids and elderly parents

When you’re retired, having your adult children or elderly parents depending on you for financial help can be an unexpected drain. If you find these may be your circumstances, you should consider setting expectations for how much and how long you can continue providing financial support for family members.

Setting boundaries can be difficult, but it helps ensure you’re providing your adult children with the support they need in a financially smart way. For those with elder parents, having family discussions might help you (and possibly siblings) anticipate what sort of financial support is both needed and reasonably available to provide your parents as they age.

Your Goldman Sachs Personal Financial Management advisor can help you set financial goals for retirement and plan for unexpected expenses that may come up.

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Based on “4 Retirement Expenses That May Surprise You” by “Marcus by Goldman Sachs®”, © (May 9, 2023).

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