If you are on the threshold of retirement, one of the great challenges is determining how much money you are actually going to need to cover future expenses. Wouldn’t it be nice to have a retirement crystal ball that would allow you to peer into the future in order to figure out how financially secure you’ll actually be?
Sadly, no one has invented a tool like that quite yet.
In response to this fog of financial uncertainty, some future retirees become complacent, hiding their heads in the proverbial sand and choosing not to plan ahead at all. Others go to the other extreme, so fearful of running out of money that they find it difficult, if not impossible, to give themselves permission to enjoy the retirement they’ve saved for.
Navigating the Middle Ground of Retirement Planning
Those in the common-sense middle ground will understand that, while retirement involves a degree of uncertainty, it’s possible with proper preparation to enjoy those golden years confidently.
Of course, prudent planners need solid information, and with that in mind, we offer this 2025 article from US News as a sort of cautionary tale. The gist of the piece, written by reporter Kate Stalter, is that your retirement expenses might very likely turn out to be higher than you think.
The rising costs of health care plus the corrosive effects of inflation on spending power – not to mention today’s longer life expectancies – are combining to derail many a retirement budget.
Budgeting in Retirement: Some Costs Will Rise Substantially
“Will you spend less in retirement?” Stalter asks in her US News article. “You might think so, and it’s true for some budget categories.” She observes that all of the traditional costs related to steady work – costs for commuting, business clothing, meals away from home, and so on – will decrease during retirement. (“Of course,” Stalter adds, “those expenses may already be fairly low for those who work at home.”)
Older adults who have raised children will also start seeing healthier budgets, at least in theory, as those kids leave the nest.
“There’s a widespread rule of thumb that retirees need about 70 percent to 80 percent of their pre-retirement income,” Stalter writes. “However, this guideline overlooks the potential for inflation and increased spending in other areas like travel, hobbies and especially health care.”
In other words, that guideline may be inaccurate or incomplete.
Be Skeptical of the Myth of Declining Expenses
Stalter observes that eliminating the high costs of educating your kids and commuting to an office will improve your budget, but, in her words, “that doesn’t necessarily mean your retirement will be cheaper.”
For her article, Stalter interviewed New York-based insurance executive James Shaffer. “While some expenses do decrease, many forget that other costs, like health care, travel and home maintenance often increase with age,” Shaffer told her. He added that many retirees spend more on hobbies, dining out, and other “bucket-list experiences” when they’re healthy and energetic in their early retirement years.
Focusing Too Much on Costs That Will Decline
Stalter notes that some retirees miss the budgeting mark by optimistically focusing on costs that are likely to drop while ignoring those more likely to rise. “Underestimating living expenses in retirement often comes from focusing on costs that may decline, such as housing or buying fewer groceries for a smaller household,” she writes. Other costs, however, will rise.
What are some of these overlooked expenses? Shaffer responds, “retirees don’t really anticipate the cost of home repairs, helping adult children financially or out-of-pocket medical expenses, which tend to grow significantly over time.” There are certainly many more.
Myth of Cheaper Retirement is Based on Outdated Assumptions
Stalter explains that the notion that retirement living will automatically be cheaper is driven to some degree by outmoded assumptions. Take taxes, for example. Stalter writes, “Pre-retirees may not realize it, but taxes will remain a significant expense.”
Stalter quotes Michele Lee Fine, financial adviser based in New York. “Americans are typically told they will be in a lower tax bracket in retirement,” Fine tells Stalter. “That may or may not be the case, as every dollar that’s withdrawn from a qualified retirement account is considered taxable income.” Those withdrawals are taxable at ordinary income rates, so even with lower traditional household income, taxes might remain burdensome for many retirees.
Entertainment Costs Have Shot Up in Recent Decades
Even entertainment, once cheap or free, costs big money.
“For example,” says Stalter, “the budget for a person who retired in 2015 didn’t include the costs of mobile apps or the numerous digital subscriptions that have replaced a daily newspaper.” Now we pay for cable, cellphones, and streaming services. (Streaming alone costs the average household $61 per month in 2024.)
Who knows what future entertainment expenses – not part of the budget – may arise?
The Number One Retirement Budget-Buster: Health Care Expense
This one comes as no surprise: the biggest culprit behind rising retirement costs, says Stalter, is health care.
She writes, “A November 2024 report from brokerage Fidelity estimated that, on average, a 65-year-old retired couple needs $330,000 in assets set aside today, after taxes, to pay for expected lifetime health care expenses. Factors such as chronic illness and longevity can increase that amount.”
Heeding Rajiv’s Warning About Uncovered LTC Costs
Despite the likelihood that they will need long-term care, relatively few of today’s retirees have long-term care insurance, as costs have risen dramatically. But the problem hasn’t gone away.
“According to the National Council on Aging, people turning 65 today have an almost 70 percent chance of needing long-term care in their lifetime,” Stalter writes.
This care will be expensive: average costs of care range between $5,000 and $10,000 (or more) per month. Without insurance, seniors will pay the cost themselves, or rely on over-stretched federal programs from Medicaid and the VA. Many will turn to home care, which will overtax family members who will become their unpaid caregivers. This is an area demanding attention, yet many future retirees choose to avoid having the tough conversations.
Don’t Underestimate the Corrosive Role of Inflation
Stalter warns, “Retirees often underestimate the threat of inflation, which has risen rapidly in recent years.” This oversight can quickly decimate a retiree’s budget. A $100 purchase today will cost $135 in 2036 if inflation stays at just 3 percent.
“Inflation quietly destroys purchasing power, particularly when retirees are living on fixed incomes or low-growth investments,” insurance exec Shaffer told Stalter. “A basket of groceries, for instance, might seem affordable at age 65 but could be significantly more expensive at 75 or 85.” Failure to plan for inflation can lead to what Shaffer terms “dangerous shortfalls later in life.”
Countering Inflation with a Range of Planning Tools and Strategies
Shaffer advises clients to prepare for these challenges by employing strategies like building an emergency fund, regularly updating budgets and planning for health care expenses with tools like health savings accounts. It may also be wise to consider downsizing to a less costly home in a retirement-friendly locale as a way to build a financial cushion.
“Pre-retirees may want to consider creating income streams from sources such as part-time work, rental properties or dividend-paying stocks to help them maintain spending flexibility in retirement,” Stalter’s article suggests.
Rajiv’s View: Build a Reliable Financial Dashboard
We asked Rajiv to comment on the best strategy for those faced with the need to plan for unpredictable living costs in retirement. He shared that while there is no such thing as a physical crystal ball, a financial dashboard can be the next best thing: a comprehensive financial roadmap to guide you through life’s financial ups and downs.
“A financial dashboard is a powerful planning tool,” says Rajiv. “It gives you the ability to make smart decisions no matter what happens in the future economy. We’ll all face unexpected financial hurdles in life – the list of potential speedbumps is endless. But with a financial dashboard, you’ll have the framework to handle them.”
We urge you to meet with a qualified planner and create a financial dashboard. The sooner you do, the better equipped you will be for whatever life throws your way. Give us a call and let us put you in contact with the right professional adviser. Then, you can face your financial future with true confidence and peace of mind.
Rajiv Nagaich – Your Retirement Planning Coach and Guide
Rajiv Nagaich’s newest program on PBS, called Designing Your Ideal Future, is bringing Rajiv’s powerful message to Americans from coast to coast. This engaging and challenging PBS show is prompting thousands to take a fresh look at the type of planning that will help them succeed in retirement.
In this one-hour PBS special, Rajiv Nagaich takes viewers step-by-step through the principles of creating a retirement plan that truly supports the life you want to live. Instead of generic check-the-box paperwork, Rajiv reveals how to infuse your perspective — your values, goals, and priorities — into every legal document and life plan component so your plan becomes a living system for your future.
Designing Your Ideal Future includes insights from real-world planning examples and a live Q&A with Rajiv Nagaich that answers viewer questions about retirement planning, legal readiness, and family communication. It’s perfect for anyone approaching retirement, currently retired, or responsible for a loved one’s future care — and for those who want a clear, effective approach to planning that prioritizes personal choice and quality of life.
What about you?
You’ve heard Rajiv say it repeatedly: 70 percent of retirement plans will fail. If you know someone whose retirement turned into a nightmare when they were forced into a nursing home, went broke paying for care, or became a burden to their families – and you want to make sure it doesn’t happen to you – then these materials are your key to retirement success.
Visit your local PBS station’s schedule to find airtimes and learn how to access companion resources — including a free Legal Readiness Quiz and tools to help build your complete LifePlanning system.
Don’t remain among the millions of Americans sleepwalking their way into a retirement they never wanted. Instead, your retirement can be the exciting and fulfilling life you’ve always hoped it would be. Start by watching, reading and sharing Rajiv’s important message.
And remember, Age On, everyone!
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