Most people approach retirement planning with good intentions: you save diligently, invest consistently, try to picture what life will look like after your working years. But even the most thoughtful plan can overlook a few major factors that have a significant impact on your long-term financial stability.
Health Care Costs Before and After Medicare
Health care is one of the largest expenses in retirement, yet it’s also one of the most underestimated.
If you retire before age 65, you’ll need to plan for private health insurance or COBRA coverage. These costs can be staggering — sometimes thousands of dollars per month — and come as a surprise to retirees who expected lower living expenses once they stop working.
Strategic planning also helps keep taxable income at levels that reduce private health insurance premiums prior to age 65, by increasing federal subsidies. In extreme cases, the difference can amount to a retiree paying $2,000 per month for coverage versus closer to $100 per month when income is properly managed. Enhanced subsidies are set to expire at the end of 2025; many, therefore, will lose most of these subsidies.
Even after Medicare begins, expenses don’t disappear. You’ll still face premiums, deductibles, prescriptions, out-of-pocket costs, and, potentially, long-term care needs. Creating a dedicated “health care bucket” within your retirement plan can help ensure these costs don’t derail your lifestyle spending.
Taxes in Retirement
Many retirees are surprised to learn how taxable their income still is.
Withdrawals from traditional IRAs and 401(k)s are fully taxable. Social Security benefits may also be taxed, depending on your overall income. And Required Minimum Distributions (RMDs) — which begin at age 73 for most people — can push you into higher tax brackets later in life.
The key is coordinating how and when you pull from various accounts. Blending distributions from tax-deferred, tax-free (Roth), and taxable accounts helps manage your tax burden and can significantly extend the life of your savings. Planning withdrawals strategically in the decade before retirement gives you more flexibility and more control.
Inflation and Lifestyle Flexibility
Inflation may feel like background noise, but over time, it can dramatically change your purchasing power. Between 2020 and 2024, inflation averaged 4.3% each year. That means $100,000 in 2020 had the same purchasing power as just $78,500 in 2024. $100 became the equivalent of $78.50.
For retirees on a fixed income, that erosion adds up quickly — especially when it comes to essential expenses like groceries, travel, and health care. Many retirees also underestimate how active (and how costly) the early years of retirement can be.
Rather than planning around a flat annual budget, build flexibility into your retirement projections. One useful approach is the “bucket strategy”:
- Short-term (1–2 years): cash and liquid funds for near-term spending
- Mid-term (3–4 years): stable investments for predictable growth
- Long-term (5+ years): growth-oriented investments to stay ahead of inflation
This approach helps balance your income needs today with the reality of rising costs tomorrow.
Start Planning 5–10 Years Before Retirement
To prepare for rising health care costs, taxes, and inflation, it’s important to start planning at least 5–10 years before retirement. That window gives you time to adjust your savings strategy, set tax-efficient withdrawal plans, and design a roadmap that supports the lifestyle you want.
Meeting with a financial advisor can help you build a retirement plan that accounts for the factors most people forget and gives you confidence that your future is fully supported.
For further retirement planning assistance, you can check out our blogs 5 Ways to Save for Retirement That You May Have Missed and Navigating Financial Milestones Across the Decades.
By Adam Ludwig, CEO & Wealth Advisor