Summary: The Retirement Budget Nobody Talks About
What It Actually Costs to Live
Frank and Deborah entered retirement with $1.2 million, a paid-off house, and a plan. Social Security at $42,000 plus $60,000 in withdrawals. Total: $102,000. Year one, they spent $124,000. Medicare premiums ran $14,200 for both. Dental work cost $6,400. A new furnace: $8,300. Their daughter needed $15,000 for a down payment. They were not spending extravagantly. They were learning what retirement actually costs.
Healthcare is the category most consistently underestimated. Medicare Part B premiums, Part D coverage, and a Medigap supplement easily cost a couple $12,000 to $18,000 per year before any significant medical events. Dental care, which Medicare does not cover, deserves its own budget line: $2,000 to $5,000 per year for a couple, more in years requiring crowns or implants. The Inflation Reduction Act capped Medicare Part D out-of-pocket drug costs at $2,000 starting in 2025, but only for Part D.
Housing remains substantial even without a mortgage. Property taxes, insurance (rising sharply in coastal and fire-prone areas), utilities, and maintenance add up. Budget 1 to 3 percent of home value annually for maintenance alone. Transportation runs $10,000 to $12,000 per vehicle per year. Taxes do not disappear: traditional 401(k) and IRA withdrawals are taxed as ordinary income, and Social Security benefits may be partially taxable.
Spending follows a U-shaped curve across retirement. Higher in the early “go-go years” of travel and projects. Lower in the middle “slow-go years.” Higher again in late retirement if significant care is needed. Planning that assumes flat spending misses this pattern.
The hidden costs catch retirees by surprise. Home maintenance comes due on deferred repairs. Helping family, rarely budgeted, frequently occurs. Cars need replacement. Long-term care, if it arrives, dwarfs everything.
The 4 percent withdrawal rule, while a useful benchmark, has limitations. Flexibility is the best protection: the ability to reduce spending in bad market years provides a cushion that rigid rules cannot. By year three, Frank and Deborah had recalibrated. The $1.2 million was enough if managed carefully. It was not enough to ignore the details.