10 Expenses that Can Drain Your Money in Retirement

Congratulations! You’ve just spent your last day at the office and you’ve officially entered retirement!

That’s a great feeling, especially if you were able to put aside a nice retirement nest egg. To safeguard your money through retirement, you’ll want to monitor your expenses and look out for these ten areas that can shrink your retirement fund faster than you planned.

1. Healthcare

A 65-year old couple retiring today can expect to spend $285,000 in healthcare expenses, according to Fidelity Investments’ 2019 Retiree Health Care Cost Estimate. And the scariest part is that Fidelity’s estimates assumed that both spouses would be eligible for Medicare Part A (for hospital visits) and Part B (for regular doctor’s visits, lab tests, and other services).

But many retirees don’t fully understand Medicare’s limitations. Medicare Part A and B (also known as Original Medicare) does not cover prescriptions, copayments, coinsurance, or deductibles. Other healthcare expenses that aren’t covered by Medicare (according to Medicare.gov) include:

  • Long-term care
  • Dentures and most dental care
  • Eye exams related to prescribing glasses
  • Cosmetic surgery
  • Acupuncture
  • Hearing exams and hearing aids
  • Routine foot care

With that in mind, there are a few ways that you can better prepare for healthcare expenses in retirement. One way is to sign up for a Medicare Prescription Drug Plan (Part D) or a Medicare Advantage Plan (Part C), both of which offer prescription coverage.

Another way to limit your healthcare expenses in retirement is to purchase a Medigap policy. Medigap policies are sold by private companies and cover some expenses that Original Medicare does not.

Finally, if you contributed to a Health Savings Account (HSA) during your working years, the remaining funds can be spent tax-free on various medical expenses throughout retirement.

Lively HSA is a great place to begin looking into an HSA. Lively allows you to save or invest with your HSA and there’s no cost to open an account or any monthly fees. See how Lively compares to competitors in our list of Best HSA Accounts.
Open a Lively HSA or read our full Lively HSA review

Related: How to Use a Health Savings Account to Save for Retirement

2. Scams

Senior citizens can be a prime target for scams. And here’s why. Most seniors have two things that attract fraudsters: a nest egg and good credit.

According to the FBI, some of the most common scams involve telemarketing. A slick con artist pretending to be a salesman will call you up on the phone and pretend to offer free gifts, low-cost health products, or a cheap vacation.

If something sounds too good to be true, it probably is. Don’t let scams drain your retirement money.

To protect yourself, avoid giving financial information over the phone like your credit card or bank account number. And never give your social security number to a random caller over the telephone.

3. Dining and entertainment

After you’ve spent a lifetime working hard and saving for retirement, you’re probably not going to be too keen on eating beans and rice every night. And while it’s tempting to splurge a bit, you could find yourself spending money faster than you planned.

To keep dining and entertainment from draining your retirement money, you’ll want to make and stick to a monthly budget for both of these categories. Find ways to enjoy a night on the town without breaking the bank–take advantage of Groupon deals or restaurant Happy Hours.

If you plan to spend a lot on dining and entertainment, find a credit card that will reward you for those purchases. These are the best credit cards for dining out.

4. Travel

Want to travel the world in retirement? That sounds like a blast. But it could also be very expensive. If travel is one of your main retirement goals, there are ways that you can keep it from draining your retirement money.

One of the best ways to save on travel is to become a “travel credit card hacker.” In other words, take advantage of credit card sign-up bonuses to score free travel. Many of the best travel credit cards offer large sign-up bonuses that can be redeemed for free hotels, airline tickets, and cruises. This is our list of the best travel cards.

Travel credit card hacking can be a great way to reduce your travel expenses in retirement but make sure to pay off your balance each month. No credit card rewards outweigh paying massive credit card interest charges.

Or get creative. Volunteer at a non-profit in exchange for free housing, swap houses with other travelers, or if you plan to be on the road a lot, cut out your hotel expenses altogether by traveling in an RV.

Related: What You Need to Know About the Holiday Inn Retirement Plan

5. Long-term care

According to the U.S. Department of Health and Human Services, 69% of people will need some form of long-term care for an average of three years.

They also say that the average cost for a semi-private room at a nursing home is $6,844 per month. Doing the quick math, that’s an average annual cost of $82,128 and a three year cost of nearly $250,000.

Unfortunately, Medicare doesn’t cover long-term care. One way to plan for these costs is to purchase a long-term care insurance policy. Some long-term care policies will cover two to five years of expenses while others will continue to pay out as long as you live.

6. Housing

You might be thinking about buying a retirement home somewhere warm or, like many other boomers, want to trade suburban life for a condo in the city.

According to AARP, houses cost 194% more today than they did in 1988. For each year that you spend in retirement, you can expect home prices to steadily rise. So if you plan to buy a home during your retirement years, make sure you are realistic about the costs.

For those still working, try to have your home paid off before you begin retirement. Or at the very least make sure that you’ve secured your mortgage at a fixed interest rate.

7. Charitable giving

If life has been good to you and you’ve been able to secure a comfortable retirement, you may have a strong urge to give back with donations to charities and non-profits.

That’s a great mindset to have but make sure not to overextend yourself. As with the rest of your money, consider setting a charity budget line item.

Before giving to a charity, make sure that the organization is a legitimate 501(3)(c) non-profit. Check with CharityNavigator.org to see how well the organization has sustained itself financially over time.

8. Family

While this one may sound harsh, kids and other family members can be a drain on your retirement money.

Related: DR Podcast 299: How to Help Others with Their Financial Struggles

Your kids, grandkids, and other family members may have legitimate expenses that are out of their control, like medical expenses or car repairs that you’ll want to help with. But when financial shortages for things like rent, utilities, or car payments become habitual, you may need to reevaluate things.

One way to make sure that your money isn’t being squandered is to pay a family member’s bill yourself, instead of just handing over your cash. And there may be other times that you simply have to say “No.”

9. Taxes

With many retirees finding second careers, you might find yourself saving for retirement while retired. This includes 401(k)s, Traditional and Roth IRAs, and Health Savings Accounts (HSAs).

You’ll also want to think through how and when you take out Social Security benefits. Depending on how much additional taxable income you bring in, 50% to 85% of your Social Security benefits may need to be included in your gross income.

Related: 6 Ways to Live On 4% of a Million Dollars When You Retire

To avoid this, you may want to wait to take Social Security benefits until you retire. Or if you have both Traditional and Roth IRAs, you may want to draw from the Traditional IRA while you delay Social Security benefits. And once you begin receiving Social Security benefits, switch to your Roth IRA funds, which won’t count as taxable income.

10. Investment expenses and advisor fees

While you may not have had much say over your company sponsored 401(k) plan and the associated fees back when you were working, you can look for low-fee mutual funds, ETFs or Index funds.

Index funds and ETFs tend to have low expense ratios, typically below 0.20%. But actively managed funds and ETFs can have higher expense ratios, often ranging from 0.50% to 1.5%.

If you have any retirement money saved outside of a 401(k), you’ll also need to consider advisory fees. If you want to use a human advisor, try to avoid paying more than 1% of assets under management. Or you could consider one of the many robo-advisors available today, which offer lower advisory fees, starting at 0.25%.

Related: The Best Robo-Advisors

The Bottom Line

You can’t anticipate every expense in retirement. But with the proper planning, you can avoid some of the most common retirement budget busters.

Looking for more retirement planning tips? Check out the 6 Retirement Steps to Prepare for the Big 60.

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