Why a Retirement Number Isn’t the Whole Plan
You’ve done the math, built your savings, and maybe even picked a retirement date. But knowing how much you need to retire is only part of the equation.
Many retirement plans focus on the savings target without accounting for the expenses and risks that can quietly reduce your income over time. And the real challenge is that these costs don’t always show up in a basic retirement calculator.
Here are five hidden costs we think every retirement plan should account for, and what you can do about them.
Healthcare Can Cost More Than You Expect
Healthcare is one of the easiest retirement expenses to underestimate, especially because the cost changes depending on when you retire.
If you retire before 65, you may need to pay for private health coverage out of pocket for several years before Medicare begins. Once Medicare starts, the costs don’t disappear. Premiums, deductibles, and expenses Medicare doesn’t fully cover, including dental, vision, and long-term care, can continue to add up.
Higher-income retirees also need to think about Medicare’s IRMAA surcharge. A higher-income year, potentially caused by something like a Roth conversion or the sale of a home, can increase Medicare premiums based on income reported from two years earlier. A decision you make today can affect your healthcare costs later.
Taxes Don’t Necessarily Go Away in Retirement
One of the biggest myths in retirement planning is that your tax bill will automatically shrink when your paycheck stops.
Withdrawals from traditional 401(k)s and IRAs are generally taxed as ordinary income. After decades of saving, required minimum distributions can eventually force withdrawals whether you need the money or not. For some retirees, those withdrawals can push them into a higher tax bracket than they were in while working.
Social Security can also be partially taxable depending on your total income. Planning when and how to draw from taxable, tax-deferred, and tax-free accounts can make a meaningful difference in how much of your money you actually keep.
Inflation Quietly Changes the Math
Inflation is easy to underestimate because it moves slowly. But if you retire at 65, your retirement could last 25 or 30 years, giving inflation plenty of time to compound.
At an average 3% annual inflation rate, purchasing power can be reduced by roughly half over that period. Healthcare and long-term care can be especially challenging because those costs may rise faster than everyday expenses.
A budget that feels comfortable in year one can feel much tighter 15 years later if your plan doesn’t account for rising costs.
Bad Market Timing Can Change the Outcome
You can control your budget, but you can’t control what the market does. If a significant market decline happens during the first few years of retirement while you’re also withdrawing money to live on, the damage can be much greater than the same decline later in retirement.
This is known as sequence of returns risk. Two people can retire with the exact same amount of savings and end up in very different financial positions 10 years later simply because of what the market did when they started taking withdrawals.
This is part of why FSA built the Safety Net, designed to help cushion against major losses, particularly during the early and more vulnerable years of retirement.
Supporting Family Can Become an Unplanned Expense
The fifth hidden cost often doesn’t appear in a written retirement plan: supporting family.
Adult children may need help. Grandchildren may have education expenses. Aging parents may need financial or caregiving support. These requests can arrive unexpectedly, and saying no is difficult when the people asking are the people you love.
The answer isn’t necessarily to stop being generous. It’s to decide ahead of time what you’re comfortable giving and build room for that support into your retirement plan. That way, a generous gift doesn’t put your own financial security at risk.
How to Plan for These Hidden Costs
Start with healthcare. If you’re retiring before 65, estimate the cost of private coverage early. If you’re approaching Medicare age, look at your income in the years leading up to Medicare so you can better understand the potential impact of IRMAA.
For taxes, talk with your advisor about which accounts to draw from first and whether partial Roth conversions during lower-income years could make sense for your situation.
For inflation, maintain enough growth potential in your portfolio to help your assets keep pace with a long retirement. Going too conservative too early can make it harder to maintain purchasing power.
For market timing, have a plan for the first five years of retirement, including how much cash or lower-risk reserves you want available. And for family support, decide in advance what you’re comfortable giving and incorporate it into the plan.
A Retirement Plan Should Account for More Than the Number
None of these hidden costs are impossible to manage on their own. The real danger is when several of them hit at the same time.
That’s why retirement planning can’t be reduced to a single savings target or calculator result. A dynamic plan should account for healthcare, taxes, inflation, market conditions, and the possibility that you’ll want to support the people you care about.
That’s the goal of FSA’s GET Wealth Planning process: bringing these pieces together so you’re preparing for more than just a retirement number.
If you’re approaching retirement or are already retired and would like a second opinion on your plan, we’d be happy to talk. No pressure, just a conversation to see whether your retirement plan is accounting for the things that matter most.
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