3 big risks retirees underestimate in retirement
Retirement planning often focuses on saving enough for retirement, but understanding how expenses may change over time is equally important.
Capital Group highlights three major risks that retirees may underestimate: health care costs, housing expenses and inflation.
Health Care Costs
Health care expenses can become a larger part of retirement spending as people age. Medicare does not cover every health care or long-term care expense, and retirees may still face premiums, deductibles, prescription costs, copayments and other out-of-pocket expenses.
Capital Group notes that a 65-year-old may need approximately $172,500 in after-tax savings to cover health care expenses throughout retirement, based on Fidelity Investments' 2025 estimate.
Housing Costs
Housing expenses do not necessarily disappear when a mortgage is paid off. Property taxes, maintenance, repairs and modifications to support aging in place can continue to affect a retiree's budget. Moving to assisted living or requiring long-term care can also significantly increase housing-related expenses.
The Impact of Inflation
Even moderate inflation can have a substantial impact over a long retirement. At an annual inflation rate of 3%, purchasing power can be reduced by approximately half over a 25-year retirement.
Because spending needs can change throughout retirement, having a flexible income strategy can help retirees prepare for rising costs and unexpected expenses.
Capital Group describes this changing pattern as the “retirement spending smile,” in which spending may be higher during the early years of retirement, decline during the middle years and increase again later in life as health care and long-term care needs grow.
Planning for these risks early can help individuals better understand their potential retirement expenses and make more informed decisions about saving, income and long-term financial security.
Source: Capital Group, 3 Big Risks Retirees Underestimate in Retirement, September 9, 2025.