What are the hidden costs of retirement?

Retirement is expensive. It’s hard enough to calculate how much money you’ll need to live, let alone how to plan for unexpected costs. Dr Claire Matthews, of Massey University, outlines some expenses that could catch you out.

The good news is few costs are truly ‘hidden’. Rather, people find costs change in ways they didn’t expect; or they have to spend money on things they didn’t have to worry about previously. Here are some examples:

Medical insurance is a pain

Medical insurance costs can be a shock. Premiums rise steadily as you age, but from retirement age they suddenly jump.

Unfortunately, many people find premiums become unaffordable. The easiest way to manage these rising costs might be to cancel the insurance.

This is not the disaster it might be in other countries, due to New Zealand’s generous public health system.

Nevertheless, closing your policy carries a different personal cost, as it’ll mean a longer wait for major, non-urgent surgery than you’d have had with medical insurance.

It also might lead to a poorer quality of life. You could face living with a health issue for some time while you’re waiting for treatment.

Having a good time

Having more time for leisure activities is a good thing and something to look forward to, but it can also be an expense, depending on your choice of leisure activities.

Attending concerts, shows and sporting events comes with varying entry fees.

Even joining a club, such as a bowls or golf club, probably requires an annual membership fee, and there may also be extra costs for equipment and clothing.

The best way to manage this extra spending is by making sure you know all the costs involved in the activities you’re planning, and then selecting what’s affordable. You could buy second-hand equipment or borrow it to help reduce costs.

Volunteering is cheap, right?

You might plan to spend your retirement volunteering for your preferred charitable cause and you might think that’s a cheap way to spend your time.

But there are costs involved. You won’t be getting paid, and volunteers can find taking part in volunteer activities incurs costs, such as fuel for travel. And sometimes you might find yourself carrying the cost of some of the organisation’s expenses, due to their limited resources.

Choose your charity carefully, to ensure your contribution is within your means, and don’t feel obliged to match others’ contributions.

It simply costs more to live

Everyday expenses can also be unexpectedly higher. Electricity and other utility costs may be higher in retirement – because you’re spending more time at home.

Vehicle expenses may increase, because you have more time to visit people and places.

Utility companies often offer a range of pricing plans, so make sure you have the cheapest plan for your current needs.

If you live in an area with public transport, you can reduce travel costs by using a SuperGold card, and travelling during off-peak periods.

Tips for planning ahead

When you’re making financial plans for retirement, it’s helpful to consider the costs you’ll incur and then plan for them. However, if you’re not retired yet, it might be harder to identify these costs.

I’d say the best way to manage unexpected costs is simply to save more than you think you’ll need, to cover expected costs. That means you’ll have ‘spare’ funds available.

You’ll also find it helpful to talk to people who are currently retired, to understand their experience of retirement costs and how they manage.

First published 13 June 2019

Story by Dr Claire Matthews

Dr Claire Matthews has been Director, Academic Programmes, for the Massey Business School since 2014. Her research interests centre around consumers’ financial behaviour, decisions and attitudes, with a particular interest in retirement planning and KiwiSaver.

This article is general in nature only and has not taken into account any particular person’s objectives or circumstances. We recommend you speak with a financial adviser. All content is correct at time of publication date.