- Retirement is hard to plan for on your own.
- Many people underestimate how much they'll spend on healthcare, a financial planner says.
- Income taxes on retirement distributions are also easily overlooked, in addition to lifestyle costs.
- Visit Personal Finance Insider for more stories.
Retirement can seem totally elusive — until it's not.
"There's a whole group of people out there who just sort of, they're working one day and they're not the next. They just haven't really planned or budgeted for anything in retirement," said Patricia Stallworth, financial planner and CEO of PS Worth, a fee-only financial planning and education firm.
Working professionals are most often part of this group, she told Insider. They've been socking away money for years and have yet to consider the costs they'll incur beyond the basics of food and housing when they leave work. Those gaps can be hard to recover from when there's no paycheck coming in.
Here are three things Stallworth says too many people — even those who have started planning — tend to overlook in their retirement budget.
1. Additional healthcare costs
Many Americans are burdened by the cost of healthcare, but expenses really mount later in life.
Medicare is divided into different parts that cover different types of care. Part A, which covers hospital, hospice, home health, skilled nursing facility, and nursing home care, is free. But full coverage for doctor's visits, prescription drugs, and custodial care require additional plans that charge a monthly premium and then some.
"What [retirees] forget about is all the extra costs beyond the premiums," Stallworth said. "It's the extra costs for things like long-term care that they may or may not have considered but can really take you down in retirement."
Hearing aids, dental care, and eye exams also aren't covered by traditional Medicare. Dental implants are a "hot new thing," she added, that can cost tens of thousands of dollars out of pocket.
People are also generally living longer, Stallworth said, and there are self-care costs for maintaining a healthy lifestyle. She recommends retirees maintain an emergency fund to use as a cushion for unexpected health expenses.
2. Income taxes on retirement savings
There's really no point in adulthood at which you're free of taxes. Still, retirees often forget that their income is taxed because of where it's coming from.
"If you've had a 401(k), or if you've transferred that into a traditional IRA, definitely that's going to be taxed when you take it out," Stallworth said. "That can turn into a big bite, depending upon what else you have going on."
And it's not just the money you choose to take out of a traditional IRA that's taxed. People aged 72 and older have to withdraw a specific amount from their defined contribution plans, like a 401(k), and traditional IRAs annually. These are known as required minimum distributions, or RMDs, and are included in income and taxed at your federal rate.
In other words, the amount you withdraw from your account won't be the amount you end up with after the government takes its share. Starting with a bigger nest egg or setting aside some income from another source can help cover the annual tax bill.
3. Big and small lifestyle costs
"It's really important before you retire to really take a hard look at how you plan on spending your days," Stallworth said.
Something as innocuous as buying gifts for grandchildren can eat into a retiree's budget when they're living on a fixed income.
"When I talk about your lifestyle, in many cases grandkids become your lifestyle; you live for your grandkids, you give them everything," Stallworth said. "And giving them everything means that the money's got to come from somewhere."
Retirement calculators will often project how much money you need to retire based on a budget of 70% to 80% of your pre-retirement expenses, Stallworth said. That may work for some people who plan to downsize or forgo travel or other costly lifestyle choices. For others, she said, expenses only go up in retirement. And that's not a bad thing — it's just something to plan for.
The Link LonkApril 24, 2021 at 07:15PM
https://www.businessinsider.com/personal-finance/retirement-expenses-people-forget-to-budget-2021-4
Retirement Expenses Too Many People Forget to Budget For - Business Insider
https://news.google.com/search?q=forget&hl=en-US&gl=US&ceid=US:en
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