Have you thought about the expenses in retirement you might have that weren't an issue during your working years?
You've probably considered whether your overall retirement expenses will be higher, lower, or the same in retirement, but you may not have dug into the details of potential expenses in retirement yet.
Here are a few retirement costs that can catch retirees off guard if they haven't thoroughly planned for expenses in retirement.
Taxes on Retirement Income
While your 401(k) balance might be $1 million or more, not all of that money may end up in your pocket. Since this money comes from pretax contributions, you will likely owe income tax on your distributions.
Part of your Social Security benefit may be taxable as well. Your annual income and federal and state tax rates will determine how much you pay.
Medicare Expenses in Retirement
Only Medicare Part A is free for most retirees. You will pay premiums for Part B (medical insurance), and, optionally, Part D (prescriptions) and Part G (Medigap). Alternatively, some people buy a Medicare Advantage plan to cover parts A, B, and D because it may give them better insurance than original Medicare.
In addition to Medicare premiums, you will need to cover deductibles and copayments. It's also essential to meet enrollment deadlines so you don't get stuck paying late enrollment penalties for life.
Long-Term Care and Retirement Expenses
Medicare does not cover long-term care expenses except for skilled nursing care after a hospital stay. If you need help with daily living activities, such as getting dressed, eating, and bathing, you'll pay these costs out of pocket unless you have a long-term care insurance policy or life insurance with long-term care benefits. Planning for these potential long-term care costs is an important part of budgeting for retirement expenses.
Connect With CQ Consulting Services to Plan for Expenses in Retirement
After a lifetime of saving, preserving your assets in retirement while covering expenses takes diligence and proactive planning. Be sure to account for all potential expenses in retirement, like healthcare, long-term care, and taxes, to create a realistic budget. Reach out today if you need help estimating expenses in retirement or developing a retirement income strategy. Our team can provide tailored guidance to prepare you for this important transition.
Check out our Cash Flow Hacks podcast to learn more about Tax-Free Retirement for Entrepreneurs.
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