Beware of Costly Surprises in Retirement

Retirement

Beware of Costly Surprises in Retirement

Planning ahead can help you get the jump on some of these surprise costs.

March 18, 2016

Achieving a successful retirement requires not only planning for what you want to go right, but also for what might go wrong. Many investors have found that retirement can bring on unwelcome surprises, some of them significant enough to derail a retirement plan.

Healthcare Costs

Expert estimates of what a couple spends during retirement for healthcare range from $400,000 to well over $1 million. Plus, many retirees underestimate how much Medicare actually costs – it usually covers only about 60% of medical costs and the rest has to come from supplemental insurance (like parts B and D, which have deductibles and copays on top of the premiums) or out of pocket. Managing your income and setting aside a portion of your retirement holdings specifically for healthcare costs can help you contain this common surprise.

Cost of Long-Term Care (LTC)

The U.S. Department of Health and Human Services estimates that 70% of people over age 65 will need some type of long- term care. Medicare doesn’t cover it, and LTC can be very expensive. Of course, your personal health history will affect your potential need for LTC, so explore your insurance options with your financial advisor, and keep to the higher-rated providers.

Higher Spending

In retirement, you no longer have access to the company car, computer and travel budget. Those things will now have to come out of your wallet. Plus, inflation will certainly make day-to-day expenses higher throughout retirement. Prepare for the additional spending you will have by identifying and budgeting for those things you want and need.

Taxes on Nest-Egg Withdrawals

When you withdraw money from a traditional IRA, 401(k) or other pre-tax investment, tax will be due, usually at your top ordinary-income tax rate. So, when you’re projecting how much you have saved for retirement, don’t forget Uncle Sam’s portion (i.e., if you have a $100,000 IRA, you really only have $65,000). And keep in mind when you reach 70½, you will be required to take minimum distributions which, yes, will be taxed, too.

Loss of Income for a Surviving Spouse

Loss of a spouse often means loss of his or her benefits from Social Security or pension without a joint-and-survivor provision. A life insurance policy can help mitigate the impact of this. In fact, good financial planning is the best way to prepare for all these common retirement surprises. Talk to your financial advisor today to discuss your options so that, hopefully, the only surprise you will notice is how much there is to life when you plan well for it.

Please note, changes in tax laws may occur at any time and could have a substantial impact upon each person’s situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.



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