Episode 48: The True Costs of Retirement Are More Than You Think (Part I)

Most of us, if not all of us women, fear running out of money and becoming a bag lady in retirement. My mother has drilled this fear into my head my entire life. Even so, I’ve made some mistakes along the way. Heck, I’m still making mistakes even though I teach people about how not to make mistakes.

One of the biggest mistakes is under-estimating the true costs of retirement and not having a plan to address these costs. There’s a myriad of reasons your projected budget might not be enough to see you through a blissful retirement. 

I got to thinking about this a couple weeks ago as I was moving into my new downsized “pre-retirement” home and then I saw an article in Yahoo Finance about key signs you may run of out of money in retirement. Cueing off of that I decided to record this episode, number 48 and next week’s episode 49 to shed some light on these costs and help you avoid being blindsided. Even if you think you have all your bases covered, I encourage you to take a listen and take some notes. You can never be too prepared.

I want all women to avoid as many surprises as possible. Retirement planning is extra challenging for us anyway. We don’t need to pile on even more challenges. It’s all about knowing more and having more. Fortune does indeed favor the smart, the bold and the prepared. 

Let’s take a look at some of the bigger mistakes when planning our retirement costs and then commit to making some extra preparations to address the true cost of retirement. Worst case, you have extra money at the end of life and leave more of a legacy than you planned. Isn’t this better than running out of money?

Let’s look at 15 mistakes many of us make when estimating the true costs of retirement:


  1. Opportunity cost: you don’t start saving AND investing soon enough
  2. Lack of a Long Term Care plan
  3. Not estimating life expectancy correctly
  4. A realistic estimate of healthcare costs
  5. Not accounting for inflation
  6. Forgetting about some big ticket expenses you’ll likely have
  7. Changing spending habits
  8. Being in the sandwich generation: loaning money to your kids or parents, or taking time off from work to care for parents
  9. Spoiling the grandkids
  10. Not understanding or factoring in taxes (there’s a huge opportunity to make your money last longer with smart tax planning)
  11. Forgetting about fees
  12. Getting divorced
  13. Take on too much or new debt prior to retirement
  14. Taking too much money from your nest egg each year
  15. Underestimating the impact of market fluctuations

And I’m going to add a 16th mistake: not getting educated and wasting time not doing anything or planning with the wrong team.


In this week’s episode, I’m going to talk about 1-8 and then in next week’s episode, I’ll cover 9-16.

  • Opportunity Costs

Opportunity costs represent the potential benefits that an individual, investor, or business misses out on when choosing one alternative over another. Because opportunity costs are unseen by definition, they can be easily overlooked. Understanding the potential missed opportunities when a business or individual chooses one investment over another allows for better decision making. In addition, when you don’t start saving and investing early, you lose out on all the opportunity of compounding interest over that time period.

How to Better Prepare?

Every time you need to make a decision, you need to consider the opportunity cost. And if you haven’t yet started consistently saving and investing you need to adjust your budget so that you can start ASAP.

  • Long-Term Care Costs

More than half of adults turning 65 today will need long-term care and about 1 in 7 will need care for more than five years, according to the Department of Health and Human Services.

If you receive care in an assisted living facility or nursing home, you’ll have to shell out big bucks. According to a National Center for Assisted Living report, the median cost for assisted living in the United States is about $4,300 per month or $51,600 annually. Over 800,000 Americans currently reside in assisted living facilities, with just over half of residents being 85+ years old.

According to Genworth’s Cost of Care Survey,1 a private room in a nursing home costs $290 per day, or $8,821 per month or $105,852 a year.

Even the wealthy could be at risk if they incur long term care needs.

How to Better Prepare?

Sign up for a long-term-care insurance policy or hybrid life insurance policy that will pay out if you have a long-term-care event. Another option is a longevity annuity.

This is an insurance product that requires a lump-sum investment and will provide a steady stream of retirement income. But, you have to wait several years or until a certain age to start receiving your payout. You should meet with a retirement advisor who can help you devise your strategy. At Her Retirement, we have access to a pretty cool software that can help you estimate your changes of having a long term care need, as well as your longevity projections.

  • Life Expectancy

Retirement will cost much more if you live a good long life. It’s kind of a double-edged sword. About 1 in 4 65-year-olds today will live to age 90, according to the Social Security Administration.

If you plan for say 20 years of expenses in retirement but end up living for 30 or even 40 years in retirement, you’ll need to figure out how to make your nest egg last. 

How to Better Prepare?

Rather than just projecting 20 years after your retirement date, a better option is to project out to age 100 just to be on the safe side. You may decide you have to work longer in retirement. If you’re not happy with your job or career, consider a new work path that can be done in retirement and allows you to make an income. Be cautious however because more than three quarters of today’s workers (77%) expect to work for pay even after they retire, according to a new Pew Research Center survey. However, these expectations are dramatically out of step with the experiences of people who are already retired – just 12% of whom are currently working for pay (either part or full time), according to the Pew survey.

In addition to the software available through Her Retirement for longevity and long term care needs calculations that I mentioned a few minutes ago, you can check out the life expectancy calculator at Here you can get an estimate of how long you may live based on your health and family history. 

One way to better prepare is with something I call a longevity insurance plan. In this plan, you rely on withdrawals from your diversified investment accounts earlier in retirement and then Social Security after age 70 (allowing it to accumulate to its full benefit).  Additionally, you should consider a Personal Pension plan that offers a source of lifetime income such as an annuity if you won’t have a pension or Social Security. 

  • Healthcare Costs

According to the Fidelity Retiree Health Care Cost Estimate, an average retired couple age 65 in 2021 may need approximately $300,000 saved (after tax) to cover health care expenses in retirement.


Of course, the amount you’ll need will depend on when and where you retire, how healthy you are, and how long you live. The amount you need will also depend on which accounts you use to pay for health care—e.g., 401(k), HSA, IRA, or taxable accounts; your tax rates in retirement (see chart); and potentially even your gross income.


How to Better Prepare?

Costs for healthcare could be significantly higher in retirement. While some things like mortgages will go down, healthcare will likely go up. In addition to Medicare costs and out of pocket costs, don’t forget about prescription co-pays.

Make sure to compare your Medicare options to choose the right plan for you. Experts say, It can be worth spending more on the premium for a comprehensive Medicare Advantage plan or supplemental Medicare plans to get better coverage and reduce out-of-pocket costs. At Her Retirement we can connect you with Medicare planning specialists. It’s certainly a big maze that many people opt to get help figuring out.

Another tip, if you’re still working and your employer offers an HSA-eligible health plan (or you can get one through your own small business), consider enrolling and contributing to a health savings account (HSA). An HSA can help you save tax-efficiently for health care costs in retirement. You can save pretax dollars (and possibly collect employer contributions), which have the potential to grow and be withdraw tax-free for federal and state tax purposes if used for qualified medical expenses.

  • The Cost of Inflation 

Historically inflation has been about 3%. While we’re working we don’t often notice it because our pay typically increases as well. However, in retirement you may not see inflationary increases. Social Security does offer an annual Cost of Living Increase. Here’s an example of how inflation can impact your retirement costs: over 20 years, your $100,000 of retirement savings will be likely worth 60% less in buying power. That’s a big hit if you don’t account for it.

How to Better Prepare

You (or your advisor/planner) MUST factor inflation into your retirement calculations. Many online calculators or simple spreadsheets don’t factor in inflation. This is a BIG mistake.

On way to protect against the impact of inflation would be to consider delaying Social Security benefits. You can maximize your Social Security benefit by waiting to claim it until age 70. Not only will your monthly check be bigger, but the Social Security Administration’s cost-of-living adjustment — which helps benefits keep up with inflation — will be applied to that bigger payout. 

One of the greatest hedges against inflation is investing in the stock market. One of the worst mistakes is leaving your money in the bank.

  • Big-Ticket Items

When doing retirement income planning, you will estimate your income sources and your expenses. You cannot forget about the big ticket items that most of us have during retirement.

How to Better Prepare?

Whether is a car or home repair or unexpected medical needs, there’s always a big ticket item that comes along. Make a list of possible ones you could face and then build in a big ticket line item in your budget.

  • Changing Spending Habits

Sometimes in retirement spending habits change by choice or by happenstance. Your fun money spending habits are likely to change, especially if you’re planning some travel and vacations, shopping, eating out and other entertainment. This cost will come down to really thinking about how you want to spend your time in retirement and how this will affect your money.

How to Better Prepare?

With your extra time, find ways to spend less on these new spending categories. Shop around for the best deals. Also, find entertainment and travel that might not require as much money, but still gives you a good and healthy quality of life.

There are plenty of other free ways to stay busy after retirement. Check out your local community for many great programs for senior and retirees. Also, consider where to retire to. There are more affordable places than others that cater to retirees and their budgets.

  • Money and Care to Kids or Parents

You could end up spending a lot more in retirement than expected if you lend money to your children or your parents or take time out of work to care for aging parents.  This is often way under-estimated by pre-retirees. 

How to Better Prepare?

By creating a plan and having a help the kids or parents fund can definitely help. But, of course, you need to have the discipline to say no when you can’t help any longer.

Your retirement security depends on the balance you create between your retirement income, assets and spending. If you spend down your assets by making loans to the kids and parents and other people you could risk not having the income you need in retirement. A plan helps you establish those tough boundaries.

I hope this part 1 episode on the True Costs of Retirement has given you some new insight and things to think about and start planning for.  There are many ways to better plan for these costs, avoid mistakes and retire with more. Next week, in episode 49, I’ll cover costs 9 through 16. Please make sure to listen in.

If you’d like to chat about your situation, as always, email me at: I can also connect you with whatever planning and advice resources you need.  Here’s to knowing more and having more, and getting her done.

Click here to listen to the audio of this episode!

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