You’ve been dreaming of retirement since before you can remember. Traveling to places you’ve always wanted to visit, having free time to do the things you enjoy and finally being able to see your friends and family more often. While all of these things are great, knowing that you can afford to live the retirement lifestyle you’ve always wanted will allow you to fully enjoy it. There are a few costs that arise as you move into retirement and you don’t want to be ready to retire only to find out that you haven’t planned effectively.
Fidelity Investments predicts that the average retired couple, aged 65 years old, will spend about $400,000 on health care expenses through age 92. While this statistic is spread out over about 30 years, it’s a significant price to pay if you haven’t planned for it. Another high cost you will likely pay is for long-term care costs. You may get some financial relief from Medicare, but you shouldn’t rely solely on it as the coverage is always changing with healthcare reform and the like. Medicare does not cover long-term care expenses, something to think about as you enter this new stage of retirement.
More Personal Spending
Many companies pay for things like cars, computers and travel for their employees. Once you begin paying for these items out of pocket, expenses add up quickly. There are many ways to save money on the items you want to purchase, too. If you know you want to travel, book your plane tickets or hotel accommodations in advance or when companies offer sales. Airlines often offer holiday sales, so if you have even a rough idea of when and where you’d like to travel, booking tickets in advance could save you money. Also, always remember to ask about senior discounts or reward programs at the stores and restaurants you visit, you never know where you could save a dollar or two!
Inflation has always caused taxes to increase or decrease, but there are a few more types of taxes you may be required to pay in retirement. For example, social security tax. Up to 85% of the benefits you receive from Social Security are most taxable. Also, the income taxation level to be taxed on your benefits is fairly low, at $32,000 for a married couple. While this tax isn’t a surprise, ensuring that you have planned for it in retirement is key to maintaining your budget. Another tax that is important not to forget is property tax. If you pay off your home, remember that you are still responsible for paying property taxes associated with the house. There are significant taxes on withdrawals from retirement accounts if you decide to take the money out early. Money is stored tax-free in a traditional IRA or 401(k) account. When you are ready to withdrawal, you have to pay taxes according to your current tax bracket. If you wait until you are 70 and ½ years of age, the taxes vanish, as you are required to make withdrawals at that point. One way to avoid paying hefty taxes is to put your money into a Roth IRA, a type of retirement fund that allows you to withdrawal tax-free.
Understanding the costs associated with retirement will allow you to be put at ease as you prepare for this new stage. Knowing you can afford the expenses will leave you feeling excited to retire and finally do all the things you’ve dreamed of like seeing the world or simply seeing your grandkids more often.