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5 Most Surprising Retirement Costs and How You Can Prepare for Them

When most people dream of retirement, they have visions of leisurely afternoons spent golfing, hours relaxing on the front porch with a favorite book and months spent visiting exotic locales with white sandy beaches and clear blue waters.

However, though everyone deserves their relaxing afternoons and exotic vacations, it’s important, when planning for retirement, to realize that just because work has stopped, that doesn’t mean the world has. Prices still fluctuate, the economy still throws us for a loop, taxes keep on coming and, most importantly, life still happens. Because of this last very real fact, we have compiled a list of the top five things you should look out for in retirement, as well as included some advice on how to deal with them.

1.     Higher Spending: The 9-5 and the dreaded commute may not be missed all that much in retirement – and sure, it’ll be a relief to no longer have to update your wardrobe every year – but all those little company perks such as meals, travel, phones, computers and sometimes even the company car, will be sorely missed—especially by your bank account.

Small businesses are notorious for compensating their employees for everything from travel to gas to lunch to office supplies. Because of this, retirees of small businesses – especially their owners – are in for a rude awakening when they enter their golden years. No longer can they put a lunch out on the company card – no longer will coffee be picked up by the company tab – and for the first time in 30 years, you may realize just how expensive travel can be.

By the time many retirees realize that the company Amex can’t pay for everything in life, it’s too late—they’ve created their retirement budget based off of what they were paying for while working, and unsurprisingly, their budget’s come up short. But you don’t have to come up short – you can be prepared for retirement, and all it takes is a little advanced planning.

The first few years of retirement tend to be the most expensive, because those are the years when retirees plan to become more active in their lives. You can still be active too, but instead of just planning for the gas bill and mortgage payments, set aside some money for the costs of transportation, food, lodging and entertainment. And don’t forget to account for the little souvenirs you will undoubtedly pick up for your grandchildren on your next road trip. Because of these unaccounted for expenses, many retirees actually spend at least 10% to 20% more than what they had estimated. In order to avoid under-budgeting yourself, sit down with a financial advisor and share with them your retirement dreams – while you may not be able to (or want to) picture the actual costs, a financial planner will, and their vision will make your retirement that much better.

2.     Health Care Costs: The cost of healthcare is probably the most underestimated retirement cost out there. Whether this is because many mistakenly believe that their insurance will cover all expenses, or that they just won’t get sick in old-age, so many people under-budget their retirement healthcare expenses by as much as $200,000! According to Fidelity Investments, the average 65-year-old couple will spend $400,000 out-of-pocket on healthcare through the age of 92—and that’s not including long-term healthcare. Nor does it include the nearly $6,500 they’ll spend on Medicare premiums each year. You can prepare for your healthcare costs by simply maintaining a good relationship with your MD, price shopping (which we can help you do online) and paying close attention to your medical habits. Receiving affordable healthcare doesn’t have to be hard, and with our help, it won’t be.

3.     Taxes: So many Americans mistakenly believe that once they retire, they no longer have to contribute to Uncle Sam’s wallet. Unfortunately, the government still wants your paycheck, even though you may no longer be receiving one. One of the most surprising taxes you might be responsible for is Social Security benefits tax. If you earn more than $32,000 a household – (No, not individually) – you will have to pay taxes on your Social Security income.

4.     …And More Taxes: Taxes don’t stop with Social Security benefits – your pretax retirement savings are also taxed. While you may be able to stash away a good chunk of change in your IRA and 401K accounts – untaxed – when you withdraw from those accounts, that amount will have a tax bill attached. You can always leave the money in there until you’re 70 ½ years old, but starting at that age, you are required to make a minimum distribution (known as the RMD or Required Minimum Distribution). If you have a lot money in a traditional tax-deferred retirement account, you may be pushed into a higher tax bracket than you bargained for. In order to avoid such tax-hits, you should consider either tapping into those accounts sooner, or stashing money away in a Roth IRA, which has no RMD and can be withdrawn tax-free.

5.     Death of a Spouse: Nobody wants to think about this type of “Retirement Surprise,” but unfortunately, we don’t get to pick and choose when death happens, oftentimes leaving us ill prepared when death does strike. One of the most critical components of retirement planning is ensuring that your surviving spouse (or yourself) has enough money to live on without that extra income stream. Though the surviving spouse can switch to a survivor benefit if the deceased spouse received benefits higher than their own, this doesn’t make up for the complete elimination of one income. There are ways to ensure that lifestyle is virtually unaffected by a spouse’s death, but or in order to prepare effectively, you should consult a financial advisor or estate planning attorney.

At MediGap Advisors, we may not be able to help you in the event that your spouse passes away, and we may be unable to contribute to your airfare and travel expenses, but we can help you save money on your healthcare expenses, and even find you tax-breaks that you didn’t know existed.  And we do all this for free.

At MediGap Advisors, we offer open enrollment every year from October 15th through December 7th for the Medicare Advantage and Part D prescription plans. Anyone can sign up during this period of time, despite preexisting conditions. We can even find you supplemental plans for little to no-extra cost. So many people are looking for solutions to high medical costs in retirement, and we have them. Visit us online to schedule a free consultation after October 1st to see how we can make retirement easier for you.

Wiley Long is founder and president of Medigap Advisors, and is passionate about helping people navigate the confusing waters of Medicare. He is the author of The Medicare Playbook: Designing Your Successful Health Coverage Strategy, a clear and simple explanation so you can make the most of your Medicare coverage. For more information visit www.MediGapAdvisors.com.

 

 
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