So, you’ve put in your time at your company and are ready to hang up the briefcase for good and enjoy your twilight years in retirement. You’ve reached your retirement savings goals, and along with a Social Security check, you expect to live very comfortably when you drive away from the office for the last time.
Whether you’re nearing retirement in the short-term or hope to retire by a certain age, it’s important to set savings goals so that you’re not hurting financially. But, many people also fail to take into consideration certain unexpected costs that could greatly impact how comfortably you live in retirement.
We’ve dedicated this post to discussing these unexpected — and often unplanned for — costs that could come back to bite you when you’re ready to call it quits. Here’s a look:
Healthcare
The older you get, the more wear and tear that’s placed on your body. Fittingly, as you age, you’re likely to need increased medical attention, whether it’s via prescription drugs, procedures or an increase in doctor’s appointments.
While it’s true that you may still have group healthcare from your employer or qualify for Medicare, the fact is that you’re still likely to be on the hook for deductibles, co-pays and other out-of-pocket expenses. In fact, it’s estimated that a 65-year-old will likely pay more than $250,000 worth of out-of-pocket expenses toward healthcare over the rest of their life. Make sure you’re budgeting for this number in your retirement savings or it’s a number that you could be struggling to meet. The last thing you want to be worrying about is how you’re going to pay your medical bills in retirement.
Inflation
Here’s one that you may not account for once you’ve hit your retirement savings goal: inflation. Most experts agree that the inflation rate is about 3 percent per year, which means that the cost of living increases by this much annually. So, if you think you’ve hit your retirement savings goal, you might want to factor in the rate of inflation for subsequent years. The good news is that most retirement calculators factor inflation into savings estimates, but it can be easy to turn a blind eye to this important factor.
Required Minimum Distributions
Once you turn 70-and-a-half years old, you have to take required minimum distributions (RMDs) from your retirement accounts except for Roth IRAs. What you need to be withdrawing depends on both your age and the balance in the account.
What happens if you don’t make the RMDs necessary? Then you’ll pay a 50 percent penalty on the amount that you should have withdrawn. Harsh, we know, but it’s the government’s way to ensuring that it is potentially able to snag some of your hard-earned retirement savings should you fall asleep at the wheel. And while it’s always best to just take the RMDs you’re supposed to be, doing so could have some unintended consequences too. For instance, it can raise your tax bill for a particular year. Make sure you know what your RMDs are each year. These can be accessed by looking up an RMD table.
401K Fees
One of the great things about 401K retirement savings accounts is that you can make tax-free allocations directly from your pay check. But you’ll more than likely be paying some form of 401K fee on an annual basis from the time you start saving to the time you retire. Generally speaking, you should expect 401K fees to be about 1 percent of your total balance, which can certainly add up in time.
Just think, if you have $2 million tucked away in a 401K account, you’ve likely paid about $20,000 in fees. To add insult to injury, these fees are often automatically deducted from your retirement savings account, so you may not even know that you’re paying them each year. While 1 percent might just seem like a drop in the bucket, these fees can add up over time, so it’ll be important for you to plan for them accordingly.
How ready are you to retire? Have you taken the aforementioned factors into consideration? Don’t be blindsided — be prepared, even if it means you have to wait another few months to officially call it quits.
Regards,
Ethan Warrick
Editor
Wealth Authority
