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Published: Mar 16, 2016 7 min read
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Many financial experts agree that as a general rule, you'll need about 70% of your pre-retirement income to live comfortably once you leave the workforce.

After all, once you're no longer working, you'll eliminate some of the expenses that come with holding a job -- particularly commuting costs, which can range from a few hundred to several thousand dollars each year. On top of that, many people have paid off their houses by the time they retire, so they don't have to worry about a mortgage payment. Given that the average first-time homebuyer these days is 33 years old, it's feasible for plenty of folks to have paid off a 30-year mortgage by the time retirement rolls around, and that makes for a huge reduction in monthly expenses.

Based on what Americans are saving for retirement, it's clear that they, like many of those so-called experts, anticipate their expenses going down. The average American's retirement account has a median balance of less than $60,000, which is not even enough to replace 70% of the ordinary American's income (about $52,000 as of 2014) for two years. Those in the 55- to 64-year-old demographic are doing a little better with a median balance of $103,000, which is about what it would take to replace 70% of a typical American's income for three years.

So what happens to those who live to age 80 and beyond? Unfortunately, many of them have to make drastic lifestyle changes, scraping by on Social Security benefits and whatever savings they may have left. One reason for this common financial shortfall is that few of us have any idea what retirement will actually cost us.

If you're among those who buy into the myth that your expenses are guaranteed to go down during retirement, then consider this your friendly wake-up call.

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Rising medical costs
If you think you're paying a lot for healthcare now, then get ready for some major sticker shock when you reach retirement. For one thing, the older you get, the more medical issues you're likely to encounter, and in the absence of a generous employer-sponsored insurance plan, your out-of-pocket expenses are likely to climb.

According to the Milliman Medical Index, the average out-of-pocket healthcare cost for a family of four is currently $10,473 per year. Meanwhile, Fidelity Investments estimates that the average couple who retires at age 65 today can expect to spend $245,000 on healthcare costs in retirement, and that figure doesn't even include long-term care services such as in-home nursing or assisted living. Since most Americans will spend 20 years in retirement, at a cost of $245,000 per couple over two decades, that's an average of $12,250 a year -- almost $2,000 more than a family of four currently pays.

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Higher real estate taxes
If you're among the lucky folks who are able to pay off their mortgages before retirement, then that missing monthly payment is bound to work wonders for your budget. However, you can't discount the possibility of a property tax hike -- or multiple tax hikes -- for as long as you hold on to that home. Even when homes decline in value, property taxes have a way of creeping up. In 2000, homeowners collectively paid an estimated $247 billion in real estate taxes. By 2010, that figure had climbed to $476 billion. When you're living on a fixed income, even a small increase in property taxes can be a source of financial stress.

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Increasing home maintenance costs
You know how health issues tend to crop up as we get older? Well, houses tend to work the same way. The older your property, the more issues you're likely to encounter. If you're hit with a major expense like replacing a heating system or roof, and you don't have the savings to absorb the cost, then the impact on your finances could be catastrophic. When you're planning for retirement, expect your home maintenance costs to climb significantly, especially if your property is older to begin with.

Remember, too, that as you get older, you may find yourself less able to perform maintenance and repairs yourself. That means you'll probably need to pay contractors now and then, raising your maintenance and repair costs even more.

The boredom factor
The great thing about having a job -- aside from the steady paycheck and all -- is that it gives you something to do for a solid eight hours a day, five days a week. When you're retired and don't have a job to go to, you're suddenly left with more hours to fill, which means you may find yourself spending more money to fend off boredom. Even if you're a whiz at scoring senior citizen discounts, over the course of a year, the cost of keeping yourself entertained day in and day out is bound to add up. According to the Bureau of Labor Statistics, the average 65-and-up household spends $200 per month on entertainment, so be sure to include some fun money in your retirement budget.

While many of your costs will drop in retirement, it's also possible that your overall living expenses will rise once you exit the workforce. That's why it's all the more important to sock away as much money as you can, while you can. If you still have a few working years left before retirement, then ramp up your savings with the goal of maxing out your 401(k) or IRA contributions. It'll soften the blow if you do come to find that the retired lifestyle isn't as cheap as you once thought it would be.