By Amie Clark

How are retirees managing their finances in today’s economy, and what unexpected costs are they facing?

In recent years, inflation has significantly impacted various industries, making it challenging for consumers to keep pace. Between January 2020 and May 2024, consumer price inflation rose by 21.75 percent, according to NerdWallet. This surge has forced substantial budget adjustments, posing particular challenges for retirees.

In a survey by Theseniorlist.com aimed at helping people plan for retirement, current retirees were asked about their financial stress, how they manage their budgets, and the expenses that surprised them the most since retiring. Feedback included:

• The typical retiree in our study spent $2,984 monthly, about $1,000 more than the average Social Security income. More than half of retirees feel like they’re living month-to-month.
• After housing and car payments, groceries, credit card, and loan payments were the biggest expenses.
• Nearly one in five retirees report significant financial worry, and 43 percent are more financially stressed now than before they retired.
• 27 percent said medical and healthcare expenses have been the most surprising costs they encountered in retirement so far, and 20 percent were most surprised by home repair and maintenance costs. 28 percent said inflation and rising living costs have been the greatest unforeseen challenges.

According to the National Council on Aging, approximately 40 percent of older Americans rely solely on their Social Security income to get by, which tends to be about $1,657 monthly. Most retired people must find ways to supplement their Social Security or savings and plan well in advance for the costs of everyday living. Theseniorlist.com reported about 32 percent of retirees have started working again.

While each person and budget are unique, a general rule of thumb is that retirees should plan their expenses to be 70 to 80 percent of their pre-retirement income.  However, the median spending in a few categories could be approaching a risky level. The median car payment of $323 stands out. Ideally, retirees should have their vehicles paid off before retiring. Credit card or loan payments at $300 per month also pose a concern, as reducing or eliminating debt before retirement can help alleviate financial stress.

For some, cutting back on discretionary spending categories such as housekeeping services, travel and vacations, dining out, and entertainment could help make ends meet.

While decreasing spending is helpful for those on fixed incomes, they also need to ensure this time in their lives prioritizes enjoyment while making ends meet. Roughly 28 percent of retirees aren’t confident they’ll be able to maintain their lifestyle throughout retirement, though. Seniors should clarify their priorities for their golden years, and budget for them.

Unexpected expenses can be particularly challenging on a fixed income. Nearly one in seven retirees wish they had more funds for basic living expenses, and 27 percent frequently worry about affording necessities. Additionally, nearly half feel unprepared for future costs.

Despite an 8.7 percent increase in Social Security cost-of-living adjustments in 2023, more than one in 10 seniors still find inflation and rising living costs are among their most unexpected expenses. Grocery and food costs in particular have taken many older people by surprise, as their costs have risen faster than many other goods.

Among all of the unexpected retirement expenses, though, more than one in four retirees said medical and healthcare were the most surprising. After all, even people in great health can still face accidents or contend with genetic medical conditions out of the blue. Generally, women need to save more than men for healthcare in retirement, with recommended savings of $217,000 compared to $184,000 for men. On average, a couple will need around $413,000 to cover healthcare costs post-retirement. There are strategies retirees can use to prepare and save for these expenses:

1. Change your perspective. View healthcare costs on an annual basis rather than as one-time payments. Consolidate premium payments and yearly deductibles into a single savings goal. Additionally, set aside extra funds for co-pays and unexpected expenses.
2. Create a dedicated medical savings account. Although Health Savings Accounts (HSAs) are useful, they require a qualifying high-deductible health plan. Consider setting up a separate account specifically for health-related expenses, allowing you to monitor available funds more effectively.
3. Assess the need for supplemental insurance.  Medicare  may not cover everything. Evaluating the cost of supplemental insurance can be worthwhile if it offsets higher out-of-pocket costs for treatments and procedures.

Since rising living costs show no sign of going back down, older adults have had to make serious adjustments to their lifestyles to make ends meet in retirement. Along the way, they’ve gained experience and advice they can pass down to those who are planning to retire.

The most common advice is to simply save more money. Nearly 20 percent of older Americans emphasized the importance of planning and budgeting to avoid financial stress in retirement. According to 15 percent of retirees in the survey, establishing these habits early in life can make living on a fixed income more manageable.

In addition, the U.S. Department of Labor  recommends:

• Contribute to your employer’s retirement savings plan.
• Consider basic investment principles.
• Avoid touching your retirement savings until you need it.
• Put money into an IRA as you save for retirement.

While saving for retirement can seem daunting, it doesn’t have to be overwhelming. Consulting with banks or financial advisors can be crucial to ensuring a happy and relatively stress-free retirement.

Source: Theseniorlist.com, an online researcher of consumer information on housing, products, and services for older adults. It polled 724 retirees 65 or older nationally in June. About a third were retired from their primary career but still worked part-time. Full results are at theseniorlist.com/retirement/costs