It is known that planning your retirement could be a challenge, largely due to the abundant costs that arise at a time when you no longer have traditional income. Fortunately, many of these expenses are simple to identify and plan, such as travel, accommodation, and insurance. However, there are various retirement costs that you may not be aware of.
Even with careful retirement planning, the actual cost of retirement can be higher than you expect. Here, we tell you about some unexpected financial costs you may run into during retirement to help you prepare for what could be coming.
Find out how the right insurance plan could help you prepare for unexpected medical costs throughout your retirement.
Think Medicare Covers Everything During Retirement? Think Again
Getting ready for these expenses can help you prolong your savings and make the most of your retirement years:
Medical expenses not covered
While retirees know that they are going to incur various health care costs, many are surprised at how much they have to pay out of pocket because they overestimate what Medicare covers.
The main Medicare plans are Part A and Part B, which cover various costs.
Part A: This plan helps pay for stays in hospitals, skilled nursing facilities, hospice services, and home health care.
Part B: This part covers doctor visits, medical equipment for outpatient care, and preventive services.
However, these plans do not cover many expenses, including those for dentistry, ophthalmology and hearing aids. They also do not cover prescription drugs or co-payments. Many experts advise a health savings account (HSA) or Medicare supplemental health insurance (Medigap), or both, to help cover these medical expenses.
Consider taking advantage of a health savings account (HSA), if available, while you work. These accounts allow you to contribute pre-tax funds, have them raised tax-free, and use them to cover health care expenses without incurring taxes.
The Hidden Financial Dangers Lurking in Your Retirement Plan
It’s also important that you understand what Medicare covers and how gaps can be filled
“Make sure you sign up on time to avoid penalties as well,” says Lawrence D. Sprung, founder and senior wealth advisor at Mitlin Financial in Hauppauge, New York. “Be sure to compare your Medicare Advantage and Part D plans annually for coverage and cost. Medigap plans can also provide additional savings to cover out-of-pocket costs that are not covered.”
Chris Urban, founder of Discovery Wealth Planning in McLean, Va., advises being proactive in tax planning as soon as possible.
“Develop a plan of what your assets and liabilities, income and expenses could be throughout the various stages of your retirement. When thinking about collecting a pension or Social Security benefits, it is absolutely necessary that you take into account the effect that taxes will have on your benefits. This surprises some people, but up to 85% of your Social Security benefit could be taxable, depending on a household’s combined income,” Urban says.
Tax Implications to Consider
Urban advises retirees to think with a cool head about how their guaranteed income will affect withdrawals from their retirement and investment accounts, as they may have different tax implications.
“The earlier you start developing a plan, the longer the time horizon you will have to reduce your tax burden throughout your life.”
When his time comes to retire, he will depend on different sources of income and health insurance than he depended on in his working years. This change may affect your finances unexpectedly, but planning ahead can help you cope with these changes. For peace of mind, consider consulting a financial advisor and a tax accountant to plan for anticipated and unexpected retirement costs.
