If you’re on the threshold of retirement, one of the great challenges is determining how much money you’re actually going to need to live on. Wouldn’t it be nice to have a retirement crystal ball – something 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. 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 recent 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.

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.) Who knows what future entertainment expenses – not part of the budget – may arise?

The Number One Retirement Budget-Buster: Health Care Costs

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.”

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.

“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: Get the Right Financial Advice

We asked Rajiv to comment on the best strategy for those faced with the need to plan for unpredictable living costs in retirement. He said, while there’s no such thing as a crystal ball, a financial dashboard can be the next best thing.

“There’s no one-size-fits-all answer to planning for a secure financial future,” Rajiv acknowledges. “Everybody’s situation is different. But I would start with a bigger question: do you have a financial roadmap to guide you?” Rajiv calls this roadmap a financial dashboard.

“It’s a powerful planning tool,” says Rajiv. “A financial dashboard is almost like that imaginary crystal ball – it gives you the ability to make smart decisions no matter what happens. That includes expected hiccups that are an inevitable part of retirement. You’ll face a sudden tax liability. Your spouse will fall ill. Your adult child will need your financial support. The list of speedbumps is endless.”

With a financial dashboard, however, you’ll have the tools to evaluate the impact of your situation and allocate your resources to meet the need. “The sooner you meet with a qualified planner and create a [financial] dashboard, the better-equipped you’ll be for whatever life throws your way,” Rajiv emphasizes. “But you need the right professional planner to help you. Please, I urge you – give us a call and let us put you in contact with the right adviser. Then,” he adds, “you can face your financial future with true confidence and peace of mind.”

Rajiv Nagaich – Your Retirement Planning Coach and Guide

The long-awaited book by Rajiv Nagaich, called Your Retirement: Dream or Disaster, has been released and is now available to the public. Retirement: Dream or Disaster joins Rajiv’s ground-breaking DVD series and workbook, Master Your Future, as a powerful planning tool in your retirement toolbox. As a friend of AgingOptions, we know you’ll want to get your copy and spread the word.

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 this book is must-read.

Through stories, examples, and personal insights, Rajiv takes us along on his journey of expanding awareness about a problem that few are willing to talk about, yet it’s one that results in millions of Americans sleepwalking their way into their worst nightmares about aging. Rajiv lays bare the shortcomings of traditional retirement planning advice, exposes the biases many professionals have about what is best for older adults, and much more.

Rajiv then offers a solution: LifePlanning, his groundbreaking approach to retirement planning. Rajiv explains the essential planning steps and, most importantly, how to develop the framework for these elements to work in concert toward your most deeply held retirement goals.

Your retirement can be the exciting and fulfilling life you’ve always wanted it to be. Start by reading and sharing Rajiv’s important message. And remember, Age On, everyone!

(originally reported at https://money.usnews.com)