Is retirement fast approaching? If so, congratulations. It’s an exciting time when you finally wind down your career and spend your days doing whatever is most important to you.
Hopefully, during this time you’re also closely examining your spending, your projected income and your budget to determine what you can and cannot afford in retirement. You will likely need to plan for a number of expenses, including housing costs, insurance, food and dining.
Not all of your expenses may be so obvious, though. In fact, there are a few important expenses that can easily fly under the radar. If you don’t plan for them, they could sink your retirement.
Below are three sneaky retirement costs that can have a big impact on your budget. Plan for these now so they don’t come back to bite you later.
Just because you’re done working doesn’t mean you’re done paying taxes. You could pay taxes on everything from pension payments to investment income to retirement account distributions and, yes, even Social Security benefits. In fact, you may find you pay even more in taxes in retirement than you did while you were working.
When you plan your distributions from retirement and investment accounts, remember you will likely need to have taxes withheld. If you don’t factor taxes into your budget, you could end up with less take-home income than you anticipated.
2. Health Care
You will likely have Medicare or some other form of insurance in retirement. You may even decide to purchase some kind of supplemental policy for further protection. However, you will still probably face a substantial amount of out-of-pocket costs related to healthcare.
In fact, Fidelity recently estimated the average 65-year-old couple retiring today would spend nearly $245,000 out-of-pocket on premiums, deductibles and co-pays during retirement.1 That figure didn’t include any kind of assisted living or long-term care expense.
You may not be able to predict all of your medical needs in the future, but you can prepare for them by anticipating future medical costs. Take advantage of savings vehicles, such as your HSA, that can help you fund medical expenses in the future. Also, think about purchasing long-term care insurance as a way to cover advanced needs later in retirement.
Inflation may not be an obvious expense, but it can have a powerful impact on your finances and your ability to live comfortably in retirement. Inflation is the gradual and regular increase in prices of everything from food to clothing to fuel and healthcare.
The level of inflation varies from year-to-year, but it’s nearly inevitable prices will go up over the long-term. Consider that if inflation averages 3 percent per year, you could expect prices to double over the course of a 24-year retirement.
Take time before you retire to develop a plan to combat inflation. While it may be tempting to opt for “safe” investments that have no risk of loss, those vehicles may not offer the growth you need to keep up with inflation. Try to find a balance between growth potential and risk management so you can maintain your standard of living throughout retirement.
Are you lacking a plan for these three expenses? Contact us at Gallagher Financial Group. We can help you identify your needs and vulnerabilities and develop an action plan. We’ve helped many workers just like you plan for a financially stable and comfortable retirement.
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