4 hidden costs of retirement

These subtle expenses can derail an otherwise sound retirement plan. Learn how to prepare for them.

By QuinStreet Jan 31, 2014 1:18PM

This post comes from Dan Rafter at partner site MoneyRates.com.


MoneyRates.com on MSN MoneyYou might think you've stashed away enough money for retirement, but planning for the costs of your post-work years is no simple task. Many workers find themselves confronting hidden costs after they leave the workforce.


Man counting money (© Flying Colours Ltd/Getty Images/Getty Images)The worst part? Those hidden costs have a habit of rising over the years.


Elle Kaplan, founding partner and chief executive officer of LexION Capital Management in New York City, says that pre-retirees have a bad habit of underestimating how much they'll spend once they leave the workforce.

"Remember, you will have a lot more free time," Kaplan says. "You have all day to sit and watch QVC and the Home Shopping Network. You have more time to go out to dinner. You might spend more than you think."


Still, it's possible to keep your expenses under control by learning about these hidden costs in advance and planning for them. Here are some common expenses that often get overlooked during the retirement-planning process.


1. Health care

It might seem odd to consider medical costs as a hidden cost of retirement. As you age, you're likely to become acutely aware of how much it costs to keep your health. Besides, there is always Medicare to help cover those medical expenses, right?


The problem is that health care tends to cost more and require more out-of-pocket expenses than pre-retirees expect, which can hurt even those who have set aside money specifically for medical costs, says Dan White, financial adviser with Glen Mills, Penn.-based Dan White and Associates.


White points to the costs of prescription drugs as an example. Retirees are living longer, and with that comes a greater amount of prescription medications for many.


"Health care costs can be huge," White says. "With people living longer, couples can pay a quarter-million dollars in medical costs alone during their retirements."


Fidelty Investments backs this estimate up. The company released a study in 2012 that indicated that the average 65-year-old couple retiring that year would need to have saved $240,000 to pay for their out-of-pocket health care costs not covered by Medicare during their retirement.


2. Housing

Housing costs wouldn't seem to be a big financial drain for those retirees who have paid off their mortgage loans. But there are always property taxes, and they rarely go down.


Pre-retirees also need to consider the cost of maintaining a home. Fixing leaking roofs and failing furnaces is rarely cheap. Some real estate websites suggest that homeowners should budget 1 to 4 percent of their home's value each year to maintain their residences, which amounts to $3,000 to $12,000 for a $300,000 home.


Those retirees who sell their homes and move into communities designed for residents 55 and older may need to factor in the costs of Homeowners Association dues and, again, the prospect of higher property taxes.


"You can expect those to go up every year," White says.


3. Relocation

Many retirees dream of moving to a warmer climate. Others want to move to be closer to their adult children and their grandchildren. Moving isn't cheap though. Retirees might have to pay for movers. They might have to spend money on new furniture and home decor. They might be moving to a community where everything from haircuts to dinners out to gas for their cars costs more. This all adds up, White says.


And some retirees might relocate more than once during their retirement years. Some follow their grandchildren through several moves, White says.


"I see many retirees who move more often than younger people," White says. "For younger families, they usually move to an area with a good school district and try to stay there for a while. With retirees, they often move several times to be closer to their grandchildren and family members. And relocating costs money each time you do it. You have to plan for that."


4. Grandchildren

Sure, they're easy to spoil, but doing so can be costly. As Kaplan says, many retirees spend more on their grandchildren than they expect. This includes setting aside money to help their grandchildren cover the costs of college tuition. This can be an especially high hidden cost, depending on how many grandchildren retirees have, Kaplan says.


"You don't want to give one grandchild money for college and then not have any left when the other grandchildren come along," Kaplan says. "That can cause a lot of bad feelings."

The best way to prepare for these hidden costs? As usual, it's all about planning long before your retirement years arrive, says Ray White, senior vice president of PNC Wealth Management in Orlando, Fla.


"You don't have to spend hours planning for retirement," White says. "The key is to get started and review where you stand at least annually."


Pre-retirees who do this may reduce their odds of being blindsided by unexpected costs in their golden years.


More from MoneyRates.com:


VIDEO ON MSN MONEY

65Comments
Jan 31, 2014 2:28PM
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I am sorry but housing and healthcare are not "hidden costs. " And if you plan on relocation when you retire, you better plan on paying for it. These aren't "hidden costs." They are just costs. 
Jan 31, 2014 3:17PM
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It appears there was not much thought put into writing this article.  If these are "hidden" costs, what about the cost of transportation, heating, cooling, groceries, etc.  All of these are things that don't come close to being a "fixed" cost.  They can fluctuate dramatically.  Just look at the cost of heating oil, propane and natural gas right now.  Who anticipated this?  And, us "old" folk have to pay for it just like everyone else.  What about the price of gas?  Mass transit (train, cab and bus fares)?  I know what my housing costs, its no secret to me.  I know what my medical expense is, I carry a supplement to my Medicare and put money in the bank to cover out-of-pocket costs.  My God, I'm 65 years old, I think I have an idea of what it costs to maintain a home, a car, a lawn, etc.  Where do they get this stuff?
Jan 31, 2014 2:06PM
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How can anyone possibly consider these costs "hidden?"

You plan for retirement so you can die on a bed - either in your house or in the hospital... :)

Jan 31, 2014 3:09PM
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Wow! I never would have spotted these HIDDEN costs without your help.

Thanks so much.
Jan 31, 2014 4:09PM
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Seems to me that these cost are present in every stage of life for those of us that are expected to pay our own way........ Perhaps the author of this article is directing this toward the retiring homeless people? Their cost are hidden in the government's budget, and paid for by we the people and the load is wearing me out.  
Jan 31, 2014 3:00PM
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you better plan on another cost. gasoline and heating due to this knucklehead in D.C. Hidden only to the idiots that voted for him.
Jan 31, 2014 7:07PM
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March 2014 will make three years I am retired, single.  My husband died five years ago.

One should think of retirement from the day employment began.  It takes years to build income, that one can live on, without working.

The main problem with retirement is, that it appears as though one is aging quicker than a younger person, each day, because of the limitations that one encounters with an older body.  If an expense arises, that you are unable to pay, one is not able to return to work, to get income.

Living near relatives, does not mean they will pick up your expenses.  You may become the unpaid babysitter, at their convenience.  If you oppose this situation, then you possibly will have no family friends.

Save your money for your expenses.  Leave what you did not use in your WILL, for anyone that showed care, while you were alive.  Grand children can get loans and Grants to attend college.

Jan 31, 2014 3:38PM
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"[T]he average 65-year-old couple [. . .] would need to have saved $240,000 to pay for their out-of-pocket health care costs not covered by Medicare during their retirement."

 

The vast majority of Americans will never have retirement funds with such a sum that can be sequestered just for healthcare. If I remember rightly, that Fidelity study included long-term care (LTC)to produce such a huge total needed for out-of-pocket, retirement-to-death money.

 

Count on long-term care facilities to continue raising their rates, and count on LTC insurance to continue to never actually pay for the price of that care (just a stipend toward it). For a solution, both hope for and support efforts to expand the "hospice" protocol.

 

Many folks will need to decide when they must, however reluctantly, take The 13th Floor Elevator. Their decision will be based not so much are their body's failure but their checkbook's exhaustion. It would be good to have some assistance to go as gently as possible into that good night. A plastic bag tied around the neck and a belly full of barbiturates is pretty crude for a nation that claims First World status.

Jan 31, 2014 7:39PM
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Wow, you people always write awfully depressing retirement-related articles.  I can't wait to get old, sit on my couch and watch QVC, order crap I don't need.   Call my grandchildren every day and ask them how much money they need because my loser children can't support them.   Oh, and that retirement place you speak of with expensive dinners, gas and haircuts, where is it?   I would love to live there.   Really, who thinks of this stuff?  
Jan 31, 2014 2:58PM
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4 percent per year for housing maintenance? That seems way too high. 
Jan 31, 2014 6:39PM
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I am beginning to believe that al these retirement articles I see with all these rediculous amounts of money they say you need to retire are nothing more than some groups desire to prevent peole from retiring all together. I feels like scar tactics.

It is this mans opinion that if you have your house paid off, your car paid off (which, in most cases will not be used nearly as much as before retirement) you have no credit card debt, In other words, with the exception of taxes, utilities, insurance, food and entertainment (which let's be honest this will be quite limited by comparison to the expense pre-retirement)  you have very little expense.

Having said that, unless you expect to live like a globe traveling rich guy, ow much money do you REALLY need.

Jan 31, 2014 3:44PM
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The author of this article explains why each of these issues is on this list. Would "unexpected" have been a more appropriate adjective than "hidden"? Probably. But when you're planning your retirement, how can you tell if you're going to be lonely and missing the family that can't really afford to come visit you five or ten years down the road? How can you know ahead of time how difficult you'll find it to NOT spend obscene amounts of money on your grandchildren? Your roof and furnace might last 40 years, or you might be paying for significant repairs every 5-10. The point of the article, if you have any facility for reading comprehension, is the same as for every other article on this subject: whatever you think you'll need in retirement, you're going to need more.
Jan 31, 2014 6:26PM
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Thanks for clueing me in on the hidden cost of housing. I can stop living in this tent now phew, wtf

Jan 31, 2014 3:47PM
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Relocation, don't take everything with you, sell things that are not worth transporting and get something at your new destination. Next,  Housing, maybe sell your primary residence and rent and keep your seller proceeds. There is no commandment that says, " thou shalt buy another home wherever I go."  When you retire if you have enough monthly cash flow, why put all your money into another piece of real estate. do you still need the tax right offs? If you do then it is a consideration. 
Feb 1, 2014 11:28AM
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Nothing here is a hidden cost.  The solution to financial distress is the same in retirement as it is in every stage of life - make a budget and live within it.  Set aside an emergency fund for emergencies; not for "hidden costs" left out of the budget and whims.
Jan 31, 2014 5:45PM
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Lets not forget all the hidden cost with obamacare. Cuts to medicare, Coming high inflation. Plus we have a big worthless moron for a president.
Feb 1, 2014 9:39AM
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The only REAL impediment in retirement living is not realizing you are retired and living well beyond your means. Make a good nest for the rest of your life and then go do fun things. Spending isn't a good retirement hobby. Becoming fixated on money grubbing isn't either. I can't imagine working in a box for decades, then retiring in a backroom staring at computer screens.
Feb 27, 2014 5:34PM
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Democrats lied and had ODUMBOCARE cancel 5 million healthcare policies then they have the audacity to brag that they signed up 4 million new Americans
That is a net loss of 1 million people

Never vote for lying democrats
U can't keep your healthcare plan or doctor and premiums are skyrocketing
Throw out democrats in November 
Jan 31, 2014 4:21PM
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Does Dan have Alzheimer's? Perhaps from his elevated income level he thinks the rest of us lowly "normal" folks are brain dead. The costs discussed are normal pre and post retirement costs. What is a hidden cost is winning a jackpot on a slot machine. I hit a penny machine for $1,900. At the end of the day I was dead even. My costs are not enough to itemize on my taxes, so I can't deduct the losses to offset the gain. Bottom line. I paid income tax on $1,900 that I did not win and income tax on social security because the winnings put me over the tax free social security level. Taxes on nothing gained - about $550.

Medical insurance costs go up every year. Deductibles go up every year, Food and housing go up every year. Those are givens that reduce a retirees. relatively fixed, income. They are not hidden. Hidden infers that there is something in existence that you don't know about. It is the things that don't exisit that eat your lunch, like the Obama tax on cigarettes and Obama mandated medical insurance.



Jan 31, 2014 5:01PM
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Hidden cost?  Your dermatologist or other specialist pulling down half a million starting salary.
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