Keep these on your radar.
More retirees rely on Social Security: AARP
As the Social Security system turns 90 years old, 65% of retirees rely on it. Surveys show that public confidence in its future continues to decline.
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When planning for retirement, it’s important to consider the various expenses you may face on a regular basis. And you probably know that you need to factor certain expenses into your budget, such as food, utilities, car insurance, and leisure.
But some important retirement benefits may be hidden from your view. Here are three things you shouldn’t forget.
1. Medical expenses that exceed Medicare premiums
You may know that to have Medicare insurance, you must pay a monthly premium for Part B, which covers outpatient treatment. You may also have a monthly premium for a Medicare Advantage or Part D drug plan (though some plans have $0 premiums).
However, don’t think that your medical costs are limited to Medicare premiums. There may be additional costs, from deductibles to coinsurance to services not covered by Medicare.
To avoid a financial crisis, include items that account for these costs in your budget. Better yet, if you can contribute to a health savings account during your working years, set that money aside for when you’re 65 or older, so it can cover at least some of your out-of-pocket costs as a Medicare enrollee.
2. Housing maintenance and large-scale repairs
You may be able to reach your retirement date by paying off your mortgage in full. But even if you do, you’ll need to budget for the other costs of homeownership: maintenance and repairs. And they can be more expensive than expected.
Bringing in a retiree may give you more free time to tackle home maintenance projects, but some of those tasks may be too difficult to handle if you don’t have the physical strength or mobility you once had. Also, if you’ve owned your home long enough to pay off your mortgage, your home may be older. This means that as various systems age, many repairs may be needed.
Make sure you have enough money for home maintenance and repairs. A general rule of thumb is to plan for these costs to equal 1% to 4% of the home price. So if your home is worth $500,000, you’ll pay between $5,000 and $20,000 a year. And in older homes, you might want to err on the high end of that range.
3. Tax
Many people forget about taxes when planning for retirement. But there can be many sources of taxable income, such as withdrawals from a traditional retirement account, investment income in a taxable brokerage account, or earnings from a part-time job. In some cases, your Social Security benefits may also be taxable.
There are steps you can take to reduce your tax burden in retirement, such as converting your traditional retirement account to a Roth account ahead of time. But it’s also important to work with your financial advisor and tax professional to develop a strategy for accessing investment returns and leveraging your savings while minimizing your annual IRS obligations.
Underestimating the costs of health care, home maintenance, and taxes, or forgetting about them altogether, can derail your retirement budget. Find ways to not only plan for these expenses, but also make them easier to manage.
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