5 "Surprise" retirement expenses
Life's little expenses don't stop simply because you're retired. And even if you've meticulously planned and saved for years, you might be caught off guard by some of the so-called hidden costs of retirement.
"People don't always anticipate all of the expenses they'll have in retirement," says Jason Heffner, financial professional with the Principal Financial Group® in Overland Park, KS. "An executable plan can help you feel more prepared."
Five retirement expenses you could be underestimating
- Taxes. Though you may no longer receive a regular paycheck, you can still expect to pay income taxes. Withdrawals from some of your accounts may be taxed as income and could potentially push you into a higher tax bracket. To manage taxes in retirement, Heffner suggests drawing your income from different "buckets" of savings. "And not every withdrawal has to come from a pre-tax account such as a traditional IRA," he adds. "In the right combination, retirees may be able to withdraw some from a non-taxable account and still stay in the lower bracket."
- Healthcare. Out-of-pocket medical expenses and long-term care are big question marks for most retirees. Consider purchasing supplemental or long-term care insurance, funding a Health Savings Account (HSA) or simply designating the funds from a particular savings account to non-covered medical costs.
- Wear and tear. Eventually your car will need servicing, and those kitchen appliances won't last forever. And then there are the inevitable big-ticket improvements to the family home, such as a new roof. "Look down the road 10 years or so, and estimate the major repairs your home might need," suggests Heffner. "Then decide what you could do now, before you retire."
- Family needs. Your plan may be to spend your money on yourself. But adult children have a way of moving back home, and elderly parents often need care. Both can deplete your savings. A financial professional can help you devise an impartial plan to handle sensitive situations like these.
- Fun. You've earned the right to enjoy your retirement, and that can mean travel, hobbies and other leisure pursuits. But if you haven't allowed for them in your budget, you could come up short. "If your plans include travel, for example, you might choose to allocate the dividends from one account to a specific vacation fund," suggests Heffner.
Three things you can do to help prepare for retirement
According to Heffner, the three most important things you can do to help prepare for retirement are to create a budget, enter retirement debt-free and determine how long you'll need the income. That's where a financial professional can help.
Evaluate your retirement goals and develop a clear plan to help you get there.
Contact a financial professional for help anticipating how much you may need to cover expenses in retirement.