3 Retirement Expenses That Could Catch You Off Guard

Getting an accurate idea of how much you’ll spend in retirement is crucial to setting savings goals and making sure you’re really ready to retire when the time to leave the workforce draws closer. Unfortunately, while planning for retirement, far too many people forget about three of the biggest costs they could end up facing in their later years.

Here are three huge expenses you’re very likely to incur as a retiree that you absolutely need to factor into your calculations when deciding the amount of money you’ll need in the future to live on.

1. Healthcare costs

Americans are significantly underestimating the amount they think they’ll spend on healthcare. In fact, a recent survey conducted by Fidelity showed that while almost 4-in-10 Americans believe average healthcare spending will total $50,000 to $100,000 for a senior retired couple during their retirement, the actual number is around $295,000.

Underestimating the amount of money you’ll need for medical care could be a disaster. You could find yourself draining your nest egg to pay for crucial medical services or unable to afford the care you need. Rather than putting yourself in this position, make a realistic estimate of likely future medical expenses after researching the issue, and be sure to consider this cost when deciding how large your nest egg needs to be.

If you’re eligible for a health savings account, you may even want to invest in it during your career and leave your money to grow so you can use it to fund your medical costs as a retiree.

2. Long-term care costs

Around 70% of older Americans will need long-term care at some point in their retirement. For those in need of this service, costs can be very high. Unfortunately, many people don’t realize Medicare won’t cover nursing care or home care in most circumstances, so they don’t prepare for how they’ll pay for it if they need it.

Saving for this cost can be a challenge because of the sheer size of the expense, with Genworth’s Cost of Care survey revealing that a semi-private room in a nursing home costs an average of $7,756 monthly. Unless you can save a very large nest egg to prepare for nursing costs, consider looking into the purchase of long-term care insurance.

3. Taxes

Taxes may come as a surprise if you’re expecting that your Social Security income won’t be subject to them. But if your provisional income exceeds $25,000 as a single filer or $32,000 as a married joint filer, the federal government will tax part of your benefits. Provisional income is taxable income plus some non-taxable income plus half your Social Security benefits. There are also 13 states that tax Social Security.

You need to know both state and federal tax rules applicable to Social Security, pension income, and distributions from retirement investment accounts if you have accounts such as traditional 401(k) plans and Individual Retirement Accounts (IRAs) that have taxable withdrawals. That’s because when you lose part of your income to the IRS or your state’s revenue board, you end up with less to spend.

By preparing for taxes, long-term care, and healthcare expenses, you can ensure you have the money you need to enjoy your later years.

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