Key Points
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Healthcare might eat up a big chunk of your income.
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Supporting grown kids could put your financial wellbeing at risk.
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Improper tax planning could have serious consequences.
A lot of people go into retirement with a plan. They create a budget, figure out when to claim Social Security, and come up with a withdrawal rate to lower the chances of their savings running out.
But in the course of your planning, you may end up underestimating a few key expenses. These three could mess with your finances if you aren’t careful.
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1. Healthcare costs
Healthcare might be one of your biggest expenses in retirement. And while you may know to budget for Medicare premiums, you may not realize how much copays, deductibles, and other out-of-pocket costs can add up.
To soften the blow, read up on your Medicare plan’s rules so you understand what coverage you’re eligible for. And shop around for Medicare plan choices each year during open enrollment, especially if your medical or prescription needs change.
It could also help to bank funds in a health savings account ahead of retirement so you’re able to better cover healthcare costs down the line. Your copays and coinsurance costs may be more manageable if you have a pool of money you can access for medical bills.
2. Supporting grown kids
Even when your kids grow up, you never stop being a parent and wanting to do what’s best for them. But if part of that involves providing financial support, you could be stressing your own finances in the process.
Have honest discussions with your kids about what you can and can’t afford to help out with. And try to find ways to provide support that don’t require you to open your wallet. That could mean babysitting your grandkids after school or giving your time in other ways.
3. Taxes
A lot of people expect their taxes to magically drop in retirement. But if you saved nicely, you may have pretty sizable IRA or 401(k) withdrawals that drive up your taxable income. And if you don’t have them now, you may have them eventually once you have to start taking required minimum distributions (RMDs).
The good news is that you can take steps to lower your taxes. For one thing, Roth conversions ahead of retirement could lead to more tax-free income and lower or non-existent RMDs. Similarly, timing the sale of assets in taxable accounts strategically could minimize taxes on capital gains.
You don’t want healthcare costs, financial aid for your adult kids, and taxes to upend your retirement finances. Take steps to plan and work around these expenses so you’re able to thrive during your senior years and enjoy retirement to the max.
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