It’s to your benefit to prepare yourself now for some common financial considerations. After all, forewarned is forearmed.
Social Security benefits and retirement savings are taxable
You may not know that once you start collecting Social Security, Uncle Sam is going to want some of that money back. Withdrawals from a 403(b) or IRA will trigger taxes as well, unless you have Roth accounts. Take these taxes into account when you’re planning your retirement budget.
Healthcare costs may catch you by surprise
According to the Fidelity Retiree Health Care Cost Estimate, in 2020 an average retired couple age 65 needed approximately $295,000 saved to cover health care expenses in retirement. You will still have to pay premiums and co-pays once you’re on Medicare. And some services aren’t covered at all, like long-term care. Consider supplemental insurance and a long-term care insurance policy to help cover unplanned expenses.
You’re required to withdraw from your nest egg
You can’t keep retirement funds in your account indefinitely. You will need to start taking required minimum distributions (RMDs) from your retirement accounts generally at age 72 (or 70½ if you turned 70½ before January 1, 2020). If you don’t withdraw on time, you’ll pay 50% of the RMD amount not taken.
You may be retired for decades
A 65-year-old can expect to live another 19 to 21.5 years on average, according to the Social Security Administration. What’s more, one third of 65-year-olds will hit age 90, and 1 in 7 will live beyond age 95.
The prospect of a 20-year or more retirement and the increased chance of health care expenses with age mean you risk outliving your money. Be sure you plan accordingly. Meeting with a financial advisor at Member Benefits can help you balance out your risk and plan for the myriad of considerations that come with a longer life span.
Housing will remain your biggest expense
Many retirees work hard to pay off their mortgage so they can afford to travel or experience once-in-a-lifetime activities. But even if you pay off your mortgage by the time your retire, property taxes and the cost of upkeep can still take up a large chunk of your budget. U.S. households led by someone age 65 or older spent an average of $17,472 on housing in 2019 (MoneyTalksNews). Make sure you plan realistically for this continued expense.
Good news: You can keep saving for retirement
If you continue to work later in life, even part-time, you can still save in tax-advantaged retirement accounts. Consider saving at least enough to get any company match.
As of 2020, there is no age limit on making regular contributions to either Traditional or Roth IRAs. And if you are self-employed, you have a few other options. Visit irs.gov for more information.