By Robert E. Quittner, Jr. CFP® & CMFC™
Investment Advisor Representative
[email protected]
You have heard this word a lot lately, and I’m only going to say it once in this article… tariffs. There—I said it. Now let’s move on to the topic at hand: the hidden financial surprises that often catch retirees off guard.
During your working years, the rhythm is familiar. Paychecks come in, bills go out, and maybe there’s a bit left over for savings beyond your 401(k) or 403(b). In retirement, however, that rhythm changes. The focus shifts from earning to managing income. Since most retirees live on a fixed budget, tracking and planning for every expense becomes crucial.
But even the best income strategy can be undermined by stealth costs—those unexpected or underestimated expenses that can wreak havoc on a retirement budget. A recent survey by TheSeniorList.com found that 43% of retirees reported being more financially stressed than they were during their working years, largely due to unplanned expenses.
While some retirees have saved enough to navigate 20 or 30 years of post-work life, many haven’t. In fact, according to surveys by organizations like Transamerica and the Employee Benefit Research Institute (EBRI), only about 40% of retirees feel confident they’ve saved enough to live comfortably.
“Retirees and pre-retirees are increasingly more aware of the need to prepare for unexpected financial events,” says Ruth Schau, director of retirement at Novant Health. “But the amount they can afford to set aside for these events has decreased. Too many people still hope for the best instead of realistically planning for life’s curveballs.”
Inflation has made things worse. According to the Society of Actuaries (SOA) Research Institute, most pre-retirees and retirees report that their savings aren’t keeping up with rising prices. The SOA’s Retirement Risk Survey revealed that 20% of retirees and 35% of pre-retirees had experienced a financial shock resulting in a loss of more than 25% of their assets.
So, what are the most common hidden costs retirees should watch out for?
- Health Care Costs
Most retirees expect to pay for health care, but the actual cost often exceeds expectations. In fact, expenses often rise as we age. According to EBRI, a couple may need up to $413,000 saved to have a 90% chance of covering health-related costs in retirement’s worst-case scenario. This includes premiums, out-of-pocket expenses, and long-term care—not typically covered by Medicare. - Taxes in Retirement
Many retirees assume taxes will go away in retirement. Not so fast. While you’ll no longer have payroll taxes withheld, other taxes often step in—on Social Security benefits, pension income, investment withdrawals, and required minimum distributions (RMDs).
Most people only experienced one tax structure as W-2 employees. Retirement introduces a much more complex tax environment, with wide variations based on income type and location. Strategic planning—especially tax-efficient asset placement—can reduce lifetime tax burdens significantly. Some estimates suggest proper planning could save retirees $100,000 to $700,000 over a 20- to 30-year retirement.
- Emergencies
Life doesn’t stop throwing curveballs in retirement. Medical emergencies, home repairs, car trouble, even a sick pet can lead to costly bills. Financial experts recommend retirees maintain an emergency fund equal to three to six months of living expenses. A high-yield savings account works well as it’s accessible and low-risk. Investing these funds in the market isn’t advised, as you may need the money at any time. - Family Crises
Helping adult children through a financial crisis, covering funeral expenses, or settling an estate can add up quickly. Some retirees spend up to $20,000 annually assisting family. Funeral costs alone can reach $12,000 to $15,000. Settling an estate may cost 3% to 8% of the total value. While family support is often given out of love, it’s important to plan for these possibilities so they don’t derail your financial security. - Inflation
Inflation erodes purchasing power and is often underestimated by retirees. The Consumer Price Index (CPI), the standard inflation measure, averaged 4% from 2020–2024 and peaked at 8% in 2022. Over the last 30 years, the average CPI has been closer to 2.5%. Even with conservative planning, budgeting for 2.5% to 3% inflation annually is wise. For example, $50,000 in annual expenses today will need to grow to nearly $90,000 in 20 years just to maintain the same lifestyle.
How to Prepare for Hidden Costs
- Create a ‘Stealth Budget’
Many retirees confuse irregular costs with emergencies. In reality, irregular costs like home maintenance, car repairs, or replacing appliances are expected—they just don’t happen every month. Track and estimate these costs, then build them into your annual retirement budget. - Start Stashing Cash Early
Time and compound interest are powerful allies. Saving now for later medical needs or emergencies helps you avoid financial strain. If you’re eligible, a Health Savings Account (HSA) is one of the best tools available—contributions are tax-deductible, growth is tax-free, and withdrawals for qualified medical expenses are tax-free as well.
Final Thought
Retirement should be a time to enjoy the rewards of your working years—not worry about financial surprises. By planning thoughtfully and budgeting realistically, you can minimize the impact of these hidden costs and better protect your long-term financial health.
Enjoy the weekend and I hope your summer is off to a great start!
Rob