Most of us think that retirement is likely to be relatively inexpensive. After all, the house and car will probably be paid-off and the kids should be gone.
However, there are several expenses that you might not consider before it’s too late.
Plan ahead and don’t be surprised by the following 5 expenses
1. Health care expenses: According to the data, the average 65 year old couple will require $400,000 out of pocket to deal with medical expenses from retirement to age 92. While parts of Medicare are free, other parts are not. Parts B and D, which cover outpatient services and prescriptions are not inexpensive. It can be $6,500 a year for a couple.
* If you have a higher income, expect these premiums to be even higher. The cost isn’t the same for everyone.
* Remember that long-term costs like nursing homes aren’t covered either, regardless of income.
* Be sure to look at all of your health care and insurance options before retiring.
2. Greater spending: You might have your house paid off, but what are you going to do with all of that free time?
* When you’re working, you don’t have time to spend a lot of money. When you’re retired, you might want to do things that you never had the time for. Going to the movies, playing golf, dining out, traveling, and other hobbies and entertainment aren’t free.
* It’s important to think about what your life will be like during retirement. From this ideal vision, you should be able to develop a reasonable budget. Are your financial assets going to be able to support this lifestyle? What can you do now to plan ahead?
* If you’re used to having a company car, cell phone, or other perks, you’re going to have to pay for these things yourself. The cost of former perks can be considerable.
3. Social security taxes: Nearly every working person understands that they’re paying into social security. What you might not know, though, is that you’re likely to be taxed again when you receive that money back in Social Security benefits. The income threshold before taxes kick-in is quite low – about $16,000 for an individual. Be prepared.
4. Tax-deferred accounts: You didn’t have to pay taxes on the income that you put into your 401(k) or traditional IRA. Unfortunately, you will have to pay taxes on your withdrawals. Adding to the misfortune, the withdrawals are taxed at your top ordinary income tax rate. This is probably more than the capital gains rate.
* So, if you want to buy a $25,000 boat, you might have to withdraw $30,000+ from your retirement accounts to cover both the boat and the taxes.
* This is one of the reasons that Roth IRAs are so attractive to those that qualify. With a Roth IRA, you contribute after-tax monies but your withdrawals are tax-free. That means all the growth inside the account is tax-fee also. Check with your tax professional to see if you qualify.
5. Loss of income for the surviving spouse: At some point, one spouse is usually forced to survive without the benefits and income that came from the other spouse. The social security survivor benefit will not completely replace the lost income. Be sure that your estate planning covers the situation of a surviving spouse.
Retirement has its own set of expenses that must be taken into consideration. It’s important to plan for these expenses while there’s still time to make the necessary adjustments to your retirement plan. Be prepared and enjoy your retirement fully.