Don’t Let These Overlooked Costs Ruin Your Retirement
Most of us began building our retirement savings since the moment we started to work. So why is it that many Americans find themselves over their heads in bills after retirement, realizing that they may not have planned properly for their future? We want to be living carefree on a beach somewhere in our retirement, not meeting with financial advisors, calling out to family members for help, or taking out loans late in our lives.
We all know we need to save for retirement, but we often don't know exactly what we're planning for. Blindly putting money aside will not optimize our retirement. By understanding the top overlooked retirement costs, we can begin to put into place concrete game plans given certain situations prevail. Understanding our particular situation in relation to these costs can help us ballpark and reassess our savings goals.(Also, see: 5 Myths That Could Hurt Your Retirement.)Healthcare Costs
More and more Americans are becoming aware of the rising cost of healthcare in retirement. Yet, the majority of us are still shocked to find that the average couple over the age of 65 can expect to pay about $245,000 in healthcare costs alone through retirement, according to Fidelity's annual Retirement Health Care Cost Estimate. Due to medical advances, we're fortunately living longer; nevertheless, as we age, we become more prone to health complications. Gaps in Medicare coverage, along with high deductibles and other out-of-pocket expenses can inflate uncovered medical expenses and put a significant dent into hard-earned retirement savings. (For related reading, see: How To Make Sure Your Healthcare Costs Do Not Ruin Your Retirement.)Unforeseen Taxes
If you've been exceptional at saving for retirement, you may find your income actually increasing after you stop working. The only downside is that your income tax bill will rise as a direct result. Retirement plans such as IRAs with required minimum distributions after the age of 70.5 will contribute to your taxable income and income tax bracket. It is important to note that failure to take the distribution can leave you with a penalty of 50% of the deficiency. Also, be aware of the fact that past a certain income threshold, Social Security benefits can also be taxable. If half of your total Social Security benefits plus your other income exceeds $32,000 for couples or $25,000 for singles, you may be required to make a payment to Uncle Sam. (To learn more, see: 5 Tax(ing) Retirement Mistakes.)A Legal Battle
As we get older, more legal issues tend to arise. From family feuds to past business deals gone wrong, your assets are never 100% safe. Therefore, you must make sure that you have the proper cushions in place in the event of a legal battle. To stay on the defense, you should be aware of the benefits of tax-efficient retirement savings accounts such as a 401(k). Make sure to stay up to date on laws in place in your particular local jurisdiction regarding the safety of IRAs in the case of a lawsuit or bankruptcy. (To learn more, see: How to Protect Your Retirement From Lawsuits)Newfound Leisure Time
Working hard in the cubicle, or out in the field, many of us imagine how amazing it will feel when we have all the time in the world to lie back and rest. But as we've probably all heard from retirees, the boredom starts to set in not too long after the well-deserved siesta. Use retirement as an opportunity to discover new hobbies, talents, friends and interests you may not have had time to focus on when working full-time.
Before retirement, it's important to evaluate this critical factor. If you're someone who would like to travel the world after retirement, or take mini-vacations to see your children dispersed around the country, traveling needs to be factored into the budget. Other hobbies can be expensive as well, such as skiing, golfing, or becoming a wine connoisseur. (For related reading, see: 4 Big Reasons Your Expenses Could Rise In Retirement.)The Bottom Line
Although it can be scary to think about, we should be prepared for the often costly price of retirement. We need to fully understand what we're saving for, to optimize our retirement planning and savings. This way, it feels better to put aside our money knowing exactly what it's helping get us towards, and preventing us from falling into.