When I launched Imagine Financial Security back in 2021, I thought I had everything figured out. I created detailed spreadsheets with revenue projections for years one, two, and three. I mapped out my expense projections carefully. But here’s what I discovered: the revenue I thought I needed to support my family was 50% lower than reality.

Part of that gap stemmed from inflation, which hit 9.1% in 2022. But a bigger part? My wife and I went from zero to three children in just 16 months (yes, twins surprised us with pregnancy number two). I’d never owned a business before. I’d never been a dad before. I didn’t know what I didn’t know.

You’re facing a similar challenge as you approach retirement. One of the biggest mistakes pre-retirees make is underestimating their retirement expenses. I’ve had people sit down with me and confidently say they need $8,000 a month to retire. Then we start talking about travel plans, golf trips, gifting to children and grandchildren, replacing vehicles, and home repairs. Suddenly, that $8,000 becomes $10,000, $11,000, or even $12,000 a month.

This doesn’t happen because people are lying or fudging their budget. It happens because they kind of forgot how life really works. Understanding your retirement expenses is critical to building a plan that actually works. If we’re off by $10,000, $15,000, or $20,000 annually, that could mean the difference between retiring at 55 versus waiting until 59 or 60.

Today, I’m sharing seven retirement expenses that consistently catch people by surprise. These aren’t theoretical concerns. These are real issues I’ve observed over 18 years of helping people plan for and execute successful retirements.

Why Estimating Retirement Expenses Is More Challenging Than You Think

Estimating retirement expenses requires thinking through scenarios you’ve never experienced yet. You’re trying to predict costs for a lifestyle you’ve never actually lived, potentially spanning 25, 30, or even 35 years. The challenge with estimating retirement expenses is that most people are overly optimistic. They envision the retirement they need rather than the retirement they really want.

If you’re married or have a partner, this gets even more complicated. You’re probably the chief financial officer of your household, but your spouse or partner probably isn’t. They may be more inclined to spend on things you’re not thinking about. Having open communication and honest dialogue about these expenses is critical.

A retirement plan is only as good as the inputs that go into it. If our investment return assumptions are wrong, that’s a problem. If inflation projections are off, that’s a problem. But as long as we’re directionally right on those factors and we get the budget assumptions right, we should be in good shape.

Nobody’s going to dial in every single expense 100% accurately—that’s impossible. But if we underestimate spending assumptions, that can dramatically impact your entire plan.

Expense #1: The Go-Go Years – When Living Expenses in Retirement Peak

I like to break retirement into three distinct phases.

1. First, you have the go-go years—the honeymoon phase of retirement.
2. Then come the slow-go years, when you start to slow down because physically you don’t have the health you had in your 50s and 60s.
3. Finally, there are the no-go years later in life, when your family is probably visiting you rather than you visiting them.

Your living expenses in retirement will likely be higher in the early years than you expect. I recently had someone tell me, “Kevin, retirement is great, but every day is Saturday. The things I loved doing on Saturday when I was working, now I can do every single day.”

If I were retired today, I’d be playing golf, fishing, traveling, and going out to eat far more often than I do now. If you’re a golfer, you know exactly what I’m talking about. I’d be booking trips to Bandon Dunes, Royal Port Rush, Streamsong, and Pinehurst. I’d rather take those trips when I’m physically able to swing the club properly, not when I’m 75 or 80 and can barely hit the ball 200 yards.

Maybe you’re not a golfer. Maybe you’re thinking about bucket-list travel or cycling trips. Whatever your passion, you’re going to pursue it heavily during your go-go years because this is the honeymoon phase of your retirement.

Planning for the Go-Go Years

Here’s something important to remember: no one has a crystal ball. You can’t tell me exactly how long your go-go years will last. I once had a client who had big plans for retirement at 65. She passed away right before retirement at 64. That story always hits home for me because it reminds me that we never know what may happen. One diagnosis can change everything.

Even if you plan to work another three, four, or five years, nothing stops you from thinking about bucket-list trips today. Many of you listening have already saved seven figures or multiple seven figures for retirement. The impact of your additional savings contributions today isn’t as meaningful as contributions you made 25 or 30 years ago—that’s the compounding effect at work.

If you’re only working two or three more years and you’re maxing out 401(k)s and Roth accounts, you may actually be oversaving. You might be able to carve out $15,000 or $20,000 to take some of those bucket-list trips today instead of waiting. Because again, we never know what may happen.

People often assume retirement spending will match their pre-retirement spending. Not so fast. In the go-go years, I consistently see people spending more in that early phase because there’s pent-up demand. Think about the pandemic—everyone was stuck at home, and then when restrictions lifted, there was massive pent-up demand for travel and experiences. Early retirement works the same way. You’ve got all these things you want to do, and suddenly you have the time to check them off your list.

Expense #2: Home Repairs and Renovations You’ll Actually Want

We need to build home repairs into the budget. I’ve seen rules of thumb suggesting you budget 1% of your home value annually. That’s a good starting point, but here’s what I’ve noticed: when you retire, you start noticing things like:

• I kind of want to renovate the kitchen
• Let’s redo the basement
• I want to create a better man cave
• We should throw in a pool or redo the deck

Life slows down a little, and you’re spending more time at home. You start thinking, “I’ve worked hard to reach financial independence. I love my house, but I want to make it the house I want to stay in for the next 20 to 30 years.”

If you’ve been in your home for 10, 15, or 20 years, there are probably projects you’ve been putting off. Just because the mortgage is paid off doesn’t mean housing expenses disappear. Principal and interest payments go away, sure, but taxes and insurance continue—and they’ll probably increase over time.

Build in not only recurring unexpected repairs but also those big-ticket items on your wish list. I’ve seen people spend six figures or multiple six figures in the first couple years of retirement just getting their house “retirement ready.” They’re making it a place they’re proud of and want to spend time in over the next 10, 15, or 20 years.

Expense #3: Taxes – The Most Underestimated Retirement Expense

If you’ve been following my podcast or YouTube channel, you know I’m passionate about tax planning and minimizing your lifetime tax bill. Taxes are an overlooked expense that pre-retirees commonly underestimate.

Many people think, “Well, when I’m working, taxes just get withheld. I max out my 401(k), but there’s not much else I can do.” In retirement, you get to choose your tax strategy. You get to choose your tax bracket to a certain degree, especially in that early phase of retirement.

The Golden Window for Tax Planning

I call the period from retirement until required minimum distribution age (73 or 75) the golden window for tax planning—the Roth conversion window. After that window closes, there’s not much you can do. You really need to be intentional before you retire and during early retirement about minimizing your lifetime tax bill.

These strategies could save you six figures, or even multiple six figures, in lifetime taxes paid. On top of that, you can maximize the tax efficiency of your legacy. This is a big reason why many clients hire us.

Think about it: once you retire, your tax situation often simplifies. You might have some consulting income or part-time income, but most of your income comes from retirement distributions, dividends, and interest. Pretty straightforward. But your tax preparer isn’t looking at your lifetime tax bill—that’s what we focus on.

There are so many opportunities here:

• Planning for Social Security taxation
• Planning for required minimum distributions
• Optimizing capital gains
• Tax loss harvesting
• Minimizing IRMAA surcharges
• Maximizing ACA tax subsidies before Medicare

For many of you, especially those who’ve built sizable wealth in tax-deferred accounts, taxes could actually be your top one, two, or three expenses in retirement.

What’s underestimated isn’t just the tax amount—it’s the lack of planning for taxes. Being intentional about the timing of those taxes, when to execute conversions, when to harvest gains at 0%, when to focus on ACA subsidies versus minimizing your long-term tax bill—these are all things you need to consider as you approach retirement and go through that early Roth conversion window phase.

If you miss that window, there’s not much you can do later on.

Expense #4: Adult Children May Still Be on the Payroll

This is tough for some of you, but it’s reality: adult children might still be on the payroll. I’m not talking about an 18, 19, or 20-year-old. I’m talking about an adult child who’s 30, 35, or even 40 years old.

I see this firsthand. I’ve been an advisor for 18 years, and I’m fortunate to have great relationships with the clients we serve. People tell me things they probably don’t even tell their therapist. It’s tough. You want to help your kids and grandkids, but there’s a fine line between helping out and enabling.

Enabling

I’ve seen what enabling does, and it’s not pretty. If you’re an enabler, you often don’t even see it yourself. You almost need a third party to step in and say, “You need to stop this.”

I had a client who admitted she was enabling her adult daughter. Her late husband, who was this daughter’s stepfather, stepped in and said, “No, we’re not doing this anymore.” He put his foot down and cut her off. Unfortunately, that fractured the relationship, but it was what was best for both parties—mom and daughter. I pray that one day they can reunite and work out their differences, but it hasn’t happened yet.

I’ve also seen the other side, where enabling continues. You’re not doing them a favor.

Short-Term Help

That said, there are times when you genuinely need to step in and help your adult child.

• Are they going through a divorce
• Maybe they lost a spouse
• Is there a large expense coming up like a wedding or a down payment

If they’re good stewards of money and grateful for the gifts you give them, that’s entirely different.

These situations will come up. How do you quantify that? I really don’t know. It’s hard to say. You know your family best. You know what goals might arise and how to potentially budget for them.

This surprises many pre-retirees. They think, “The kids are off the payroll. They’re out of college. They’re on their own.” Not so fast. In today’s world, housing costs have skyrocketed, childcare is expensive, and raising a family is hard.

How to Budget for Assisting Adult Children

I don’t have a perfect answer for how to budget for these things, other than:

1. Try not to enable your adult children.
2. Help when you can—many of you can easily help financially.
3. Pick the areas you are willing to help with.
4. Come up with a plan.
5. Communicate why you want to help them.
6. Make sure it doesn’t become something they expect every time something big comes up.

This is also a great opportunity to revisit your estate plan given the financial dynamics with your beneficiaries and how they are navigating their own finances. 

Expense #5: Delegating Tasks You Used to Do Yourself

You’re going to start delegating things you used to do yourself. This can even happen pre-retirement. It happens to me to a certain degree. There are things I used to DIY that I’d rather delegate now. My time is limited. If I were DIYing everything, I’d have no time for my podcast or to spend with my kids.

Over time, you’ll find you start to delegate more. Lawn care, landscaping, cleaning your home—all these things. You’re thinking, “I’d rather travel. I’d rather go on this golf trip than spend my Saturday mowing the lawn.”

The older you get and the closer you get to retirement, think through what’s realistic. What tasks will you probably delegate over the long term? What do those things cost? Build that into your budget.

Talk to your neighbors who are in their 70s and 80s. Are they mowing their own lawns? Are they doing all their gardening? Maybe some of them are, but probably many are delegating at this point.

Think through what expenses could become part of your annual recurring budget and build them into your retirement plan.

Expense #6: Vehicle Replacement – A Typical Expense in Retirement People Forget

When planning for typical retirement expenses, don’t forget to account for the cost of replacing your car every 7-10 years. Vehicle replacement may seem like a small issue because it doesn’t happen every year, but if you do the math, the numbers add up quickly.

If you have a 30-year retirement and you’re replacing your car every seven years, that’s three new cars per person. If you have two people in your household, that’s potentially six or seven new cars during retirement.

Look at vehicle prices today. I’ve been driving this Honda for 12 years now. I can afford a new car—I just had other things I wanted to spend my money on. But we’re getting to that point. The car has some mileage on it, and my wife wants something bigger and safer for road trips.

I haven’t replaced a car in six years. The last vehicle we bought was my wife’s minivan. Prices have gone up astronomically. It’s unbelievable. I see some of these SUVs people are driving—and I’m not judging—but people are spending $110,000 or $120,000 on vehicles.

Many of you listening could easily afford that, but you’re still not doing it. You’re comfortable buying used vehicles. That’s fine—I value experiences over vehicles. I’m not a big car guy. But if you like to replace your vehicle every three to five years, you need to factor that in. If you’re doing the bare minimum—once every seven, 10, or 12 years—you still need to budget for it.

Vehicle Replacement Planning

Regardless of your vehicle plan, put it on paper. Put it into your retirement budget. Figure out how you’ll finance it. Will you pay cash? Where will that money come from?

• Brokerage accounts
• Traditional IRA
• Required minimum distributions
• Roth account

Have a plan and be intentional. This isn’t like an unexpected home repair. This will come up regularly, and it can dramatically impact your long-term plan if you don’t budget for it.

Expense #7: Healthcare and Aging Costs Throughout Retirement

Healthcare in the US is expensive—we all know this. It’s a racket, frankly, no matter how you slice it. Once you go on Medicare, things get a little easier, but many of you will retire before Medicare eligibility.

You don’t realize how much your employer subsidizes your insurance until you retire. Then you see the sticker price on a private policy: $1,000, $2,000, or even $6,000 a month if you’re living in California. These are expenses you need to budget for.

If you’re strategic and listen to my advice about minimizing premiums through ACA premium tax credits, that’s a different conversation. That goes hand in hand with tax planning in retirement. But there’s that bridge to Medicare you need to plan for.

Once you’re on Medicare, the game isn’t over. You still have out-of-pocket expenses: vision, dental, supplemental insurance, Medigap. All of these can add up significantly more than you planned for.

Maybe you’re fortunate enough to have high income in retirement, and you’re subject to IRMAA. You could be paying another $10,000 a year in medical costs because of your modified adjusted gross income. You need to factor that in post-Medicare.

Aging and Long-Term Care

Then later on, we’ve got aging in place and long-term care. These are things we need to think about when building a retirement budget. Statistics show 70% of you will need some kind of care later in life. We don’t know how long that will last or the extent of care needed.

Most of you would probably prefer to age in place at home rather than move into a nursing home. Think about how to modify your home to make it livable throughout your 70s, 80s, 90s, and potentially into your 100s.

At the very end of life, what if you’re part of that 70% who needs long-term care? How will you pay for it?

1. Will you fund it out of pocket?
2. Will you have long-term care insurance?
3. Will you use your traditional IRA, an HSA, or a Roth account?

Think through that long-term care plan, so you’re not a burden on your beneficiaries and adult children.

Retirement Spending Isn’t Linear—And That’s Why Planning Matters

The biggest lesson I want you to take away is this: retirement spending is not linear. You don’t spend the same amount at 62 as you do at 82. The challenge is that the most expensive years are often the early years for your lifestyle, but later in retirement, healthcare costs spike. Things flip. Healthcare may be lower on the front end and higher on the back end. Travel and golf are higher on the front end, lower on the back end.

Think about checking off those big bucket-list experiences early in retirement, then adjust your spending as you move through different retirement phases. Retirement planning isn’t about figuring out one spending number—it’s about understanding how expenses change over time.

Most retirement issues don’t happen because someone earned 7.5% versus 7.2% on their investments. They happen because the assumptions were way off, particularly on the expense side.

If you’re approaching retirement and want help stress testing your plan—figuring out how taxes, spending, and financial optimization all tie together—this is exactly the type of work we do at Imagine Financial Security.

How We Can Help

Our firm helps individuals over 50 who have at least $1 million saved navigate these complex retirement decisions. If you are looking to

• Maximize your retirement spending
• Minimize your lifetime tax bill
• Worry less about money

You can start by taking our Retirement Readiness Questionnaire on our website at www.imaginefinancialsecurity.com, so we can learn more about how we can help you on your journey to and through retirement.

Not quite ready to take the questionnaire, but want helpful tips and resources? Sign up for our monthly newsletter and/or subscribe to our YouTube channel.

This is for general education purposes only and should not be considered as tax, legal, or investment advice.