Does your retirement budget account for all of these costs? If not, they could derail your retirement. You may need to alter your strategy.
Hidden Housing Costs
First, there are housing costs to consider. Many pre-retirees fail to look beyond their monthly mortgage payment when estimating their long-term housing costs. Unanticipated home repairs and renovations are one of the most common hidden costs that could end up surprising you. If it’s been a while since you bought your home, having it inspected by a professional can help you identify potential problems before they worsen. If you plan to remain in your home long-term, you should also factor in potential costs of improvements. As unpleasant as it is to think about, you may have to add wheelchair access, or other disability-related alterations.
Uncovered Health Care
Next, it’s important to remember health care costs. Even with Medicare, they can be a pretty penny. However, many retirees are under the impression that Medicare covers more than it actually does. As a result, the hidden cost of healthcare can sneak up on you. It’s important to do your research into what it does cover, and what strategies you can use to cover the costs of health care.
Next, there’s long-term care. The U.S. Department of Health and Human Services estimates that around 70% of today’s 65-year-olds will require some kind of long-term care in the future. Not to mention, the cost of this care is rising. Some retirees may be able to reduce the cost by turning to their families for help, but those who can’t or don’t want to rely on their loved ones generally cover these expenses one of two ways: Out-of-pocket, or through long-term care insurance. Take your estate planning goals into account when deciding which of these options is better for you.
A Child in Crisis
This is another possibility. It’s natural to feel the need to step in when your child needs financial help. However, the older you are, the more difficult it can be to do this. Helping your financially struggling adult child may put your retirement savings at risk. Before offering your support, think about how much help you’re able to provide, and for how long. Not only that, but it’s important to have a conversation with your child in which you make the extent you’re able to help clear, and sort out the terms of the arrangement.
Federal Income Taxes
The next thing you should be thinking about is federal income taxes. They aren’t necessarily an expense that stops when your working years end, believe it or not. If your income drops when you retire, your taxes will likely decrease, too. But that doesn’t mean your federal income tax bill will fall to nothing. Certain types of retirement income, including making withdrawals from certain retirement accounts, are taxable. Even Social Security can be in some cases. If you’re looking for a way to lessen the burden of taxes in retirement, we may be able to help you with this. Reach out to us to learn more.
State Income Taxes
Then, there are state income taxes to consider. And if you live in an area that levies local income taxes, those won’t stop, either. For example, some states tax Social Security benefits, and many tax certain other types of retirement income. Again, however, there are strategies, such as tax-deferred accounts, that can help with this.
Do you plan on traveling in retirement? While having the time to do so is one of the best retirement perks, travel comes at a high cost. It’s important that you have the money to not only cover unavoidable expenses, but also enough to actually enjoy your retirement. Traveling is an example of this… Adding an “extras” section to your retirement budget might be a smart move.
Losing a Spouse
One thing you will, unfortunately, have to think about when planning for retirement is the possibility of losing your spouse. There’s little you can do to prepare for the emotional shock of this happening. However, failing to financially prepare for it can leave you in a bad position. There are certain actions you can take to be prepared, such as purchasing life insurance and correctly utilizing Social Security benefits. Contact us to learn more.
People are Living Longer
Did you know people are, on average, living longer than they used to? While obviously, a longer life is a good thing overall, it also means your retirement will last longer. You’ll need more money than someone in the past would’ve in order to not run out of savings partway through your retirement. It gives several of these costs more time to increase. And, on the subject of increasing costs, that brings us to…
Finally, there’s inflation to consider. The impact it will have on your retirement cannot be ignored. This has become even more apparent recently. Rising inflation has the potential to erode the value of your money. It pushes up the cost of everything you buy: From basic expenses like food and housing, to travel and recreation, and just about everything else. No one knows for sure where inflation will go in the future. However, there are things you can do to “Hedge your bets” against inflation through certain financial decisions. Not to mention, there are some financial vehicles that may be able to increase at a rate that accounts for inflation. Interested in learning more? Contact Retallick Financial today.