Personal Finance

3 unexpected retirement costs that can shake up your finances

Key Points
  • 43 percent of retired boomers are spending more than they expected on health care.
  • Four out of 10 participants say travel costs are higher than anticipated.
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Health-care expenses and taxes are throwing off baby boomers' spending patterns.

These are just two of the living costs that are consuming more of retirees' budgets than they had originally planned, according to a new survey from Capital Group, an investment management firm. The company teamed with APCO Insight to poll 1,200 adults online in March 2017.

Among the retired boomers who participated, 43 percent said that they were spending more than expected on health-care expenses. That's not surprising, considering that a healthy 65-year-old couple that retire this year can anticipate spending $275,000 on medical expenses – not counting long-term care, dental work or over-the-counter medications – once they've stopped working, according to Fidelity.

"There has never been a generation as healthy, active and well-off as this one," said Heather Lord, senior vice president and head of strategy and innovation at Capital Group.

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Longer lives and higher health-care costs can hurt retirees' wallets, so they ought to plan for these expenses with their financial advisors as early as possible.

"The implication is that there's a need for a conversation on long-term goals and helping them prepare," Lord said.

Here are the other surprise expenses that are sapping retirees' finances:

The pain of travel costs

"Travel is the most popular activity for retirees, but it costs them more than expected," said Lord of Capital Group.

In fact, four in 10 retirees said they were spending more than anticipated on traveling.

Boomers with less savings tend to slash their travel and entertainment budget in order to manage their cash flow. Thirty-five percent of retirees said they take fewer trips than they would have liked, while nearly 30 percent said they spend less on entertainment.

Uncle Sam takes a bite

Despite the fact that retirees no longer have to worry about payroll taxes and their income may be in a lower tax bracket, Uncle Sam takes a large bite out of boomers' budgets. More than three in 10 retirees said they were spending more than expected on taxes.

Retirees can help manage their levies by moving to tax-friendly locales. Florida, for instance, has no income or estate taxes. (See below for a map from Kiplinger, detailing which states are most and least tax-friendly.)

But income levies are only part of the picture: Retirees should also be aware of sales and property taxes they'll face if they relocate.

What you can control

It's hard to forecast health-care costs and taxes far into the future, but Capital Group's Lord had three suggestions for savers to prepare themselves:

  • Watch your fees: Fund costs that are too high take a bite out of your returns, which can hamper your savings in the long run.
  • Diversify your portfolio: Even though more than half of boomers expect that the market will continue to rise over the next 10 years, it's probably not the best idea to concentrate all of your savings into stocks or any other investment. "Retired boomers believe having a diversified portfolio is key," said Lord.
  • Protect yourself against downturns: When the market slumps, don't just go with your gut. Work with your financial advisor to plot a course of action. Three in 10 boomers in the survey said they wish they knew sooner how to react amid turbulent markets.
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