My daily expenses will fall when I retire. I’ll reap a windfall by downsizing to a smaller home. Medicare will cover all my medical bills. These assumptions play a central role in many retirement plans— but they’re often wrong. Here’s a look at five retirement financial surprises that can derail your retirement plans…

Surprise: Daily expenses often go up in retirement. Conventional wisdom holds that day-to-day spending drops to 70% to 80% of its prior level when people retire. But many retirees discover that their daily budget increases, particularly during the early retirement years because they have time to do things they’ve always dreamed of doing. A 2017 study by the Investment Company Institute found that more than half of taxpayers saw spending rise during the first three years after they initially claimed Social Security.

Whether your daily spending goes up or down generally boils down to how you fill those hours that you used to spend working. If you mostly stay home working in your garden or volunteering, your expenses likely will fall. But if you try to fulfill your travel dreams, eat out more often and/or splurge on entertainment, they’re likely to rise.

What to do: Be realistic about what you enjoy doing on your free days— are you happy at home or usually out and about? And what are your average day-off expenses when you do go out? Use this info to construct a realistic estimate of daily retirement expenses. If the estimate is more than you can afford, search for low-cost alternatives. Examples: You might want to combine a movie night out with a special dinner at home that costs far less than a restaurant meal. And a day spent in a park—strolling, reading and picnicking—may be just as enjoyable as a day at a pricey inn or fancy spa.

Surprise: Medicare leaves retirees with hefty out-of-pocket costs. If you ask someone who isn’t yet retired about Medicare, he/she usually will say that it covers health-care costs for people age 65 and up. But people already on Medicare know the truth—Medicare covers only a portion of health-care costs. Its coverage gaps, deductibles and premiums leave the typical Medicare recipient with more than $5,500 in health-care costs each year.

What to do: Sign up for a Medigap plan when you enroll in original Medicare… or sign up for a Medicare Advantage plan instead of original Medicare. Medicare Advantage plans, offered by private companies, provide an alternative to original Medicare that usually has lower out-of-pocket costs as long as you stay within the plan’s provider network. The average premium for Medicare Advantage enrollees was just $35 in 2020 but varies from state to state. But if you don’t want to be constrained by a limited provider network, Medigap could be a better option. The plans, which are sold by private companies, supplement original Medicare, covering some health-care costs that otherwise would not be covered. Medigap requires payment of an additional monthly premium, but it’s easier to build these predictable recurring premiums into a budget than cope with unexpected out-of-pocket medical bills.

Note: Retiring prior to age 65, the usual age of Medicare eligibility, can trigger an even greater health-care cost surprise. People often don’t realize how expensive it is to buy health insurance on the open market—and how limited this coverage can be. Before retiring, ask your employer’s benefits department whether you would be eligible to pay to remain on the employer’s health insurance for up to 18 months after retiring through COBRA, and if so, how much this would cost. As of 2019, the average cost was more than $7,000 for an individual, perhaps twice that for a couple and more than $20,000 for a family. Also investigate obtaining health insurance through the Affordable Care Act exchanges.

Surprise: Your tax bill might rise in retirement. You’re no longer earning wages, so your taxes are certain to fall, right? Not necessarily. Money withdrawn from tax-deferred accounts such as traditional IRAs and 401(k)s is taxed as ordinary income. You’ll probably have to pay income taxes on your Social Security benefits, too—if your income is $25,000 or more ($32,000 or more if married and filing jointly), up to half of your benefits will be taxed. If it’s above $34,000 ($44,000 married filing jointly), up to 85% of your income will be taxed. And once you’re fully retired and no longer receiving earned income, you’ll no longer be able to lower your tax bill by making contributions to a tax-deferred IRA or 401(k). Add all this up, and your tax bill might not be going down.

What to do: Each year during retirement, try to get a sense of whether your tax bracket will be higher or lower than usual that year. Has the government raised or lowered tax rates? Have your investments risen or fallen in value, causing capital gains or losses? High-bracket years are a good time to make tax-free withdrawals from Roth IRAs or Roth 401(k)s. Low-bracket years are the time to make withdrawals from tax-deferred accounts. Make these withdrawals before the calendar year ends, not as tax-filing day approaches. Roth withdrawals apply to the year in which they are made.

Surprise: Downsizing doesn’t always generate a financial windfall. Selling one property and buying another is pricier than most people realize—real estate agent commissions, mortgage closing costs, mover’s fees and other expenses related to these transactions can consume as much as 10% of the value of the home being sold.

What’s more, when people downsize, they often move into properties that are smaller but in more desirable areas. A one-bedroom condo might not cost much less than a three-bedroom house if the house was in a standard suburb but the condo is near the beach or in a vibrant city. Desirable condos often come with steep condo fees, too—sometimes $500 to $1,000 per month.

What to do: Be clear about the reason you are downsizing before you begin shopping for a new home. If “adding to my retirement savings” is at or near the top of your priorities, set your housing budget accordingly. Otherwise it’s easy to fall in love with a small-but-pricey residence that undermines the reason you were downsizing in the first place.

Surprise: “Gray divorce” is on the rise, so the nest egg might have to fund two nests. The divorce rate among Americans over age 50 has more than doubled since 1990, to around one couple in every 100 per year, even as the overall divorce rate has declined. The stress of spending more time together post-retirement is one reason for retirement divorces…and some spouses put off leaving until their kids are grown. The cost of divorcing during retirement, including hefty lawyer fees, takes a greater financial toll than splitting earlier. Once someone is retired, it’s too late to increase savings to make up for the setback. One 2019 study found that divorcing after age 50 reduces women’s subsequent standard of living by 45%… men’s by 21%.

What to do: Be honest about the health of your relationship and don’t let problems fester. If you divorce during retirement, or appear to be heading toward divorce, immediately reassess your spending—you might have to make significant cuts.