You’ve been saving up and investing wisely, and now it’s time to retire. That should mean you have the chance to do whatever you want with however much of your money you want, right? Well, as it turns out, that may not be the case. There are some financial surprises you may find yourself facing in retirement. However, you may be able to avoid or at least mitigate them through proper planning.
Develop a Tax Strategy
You may already know that a lot of your pre-tax savings and investments are going to be taxed when you pull money from them, but did you know that your Social Security benefits are also taxed? Many people are surprised by how much of their retirement income is taxed, which can leave you in a tough spot. It’s important to understand what will and won’t be taxed, as well as what percentage you can expect to pay in taxes so you can account for that when saving, investing, and withdrawing money from accounts. If you aren’t careful, you could find yourself in a higher tax bracket in retirement than you were during your entire working career.
Save for Healthcare
Healthcare is one of the more significant expenses facing retirees. It’s one of those costs that tends to only increase with time as your health and wellbeing start to decline. The good news is that once you turn 65, you qualify for Medicare coverage. This can help you meet your healthcare needs. Part A provides hospital coverage. Part B provides medical coverage. Part C, sometimes called Medicare Advantage, combines Parts A and B. Medicare Advantage Part D plans build on the features of Parts A and B. This part of Medicare provides coverage for prescription drug costs. While Medicare offsets the cost of healthcare, it’s important to note that it doesn’t mean 100% free healthcare, and it doesn’t cover things like long-term care. You’ll still have to pay for some of your care out of pocket, so it’s important to start saving early for healthcare costs.
Budget Carefully
Just because you’ve retired doesn’t mean you should start spending wildly. Like all other times of life, it’s important to create a budget and follow it. This helps you account for what you’re spending and where your money is going. You’ll be in a better position to track how quickly you’re going through your retirement funds so you can adjust your spending if you need to before it’s too late to make a difference.
Avoiding financial surprises altogether in retirement may not be possible, but there are things you can do to put yourself in a better position to respond to them. Start by developing a tax strategy and saving for healthcare. Just like in any other time of life, it’s important to carefully design and follow a budget. This will help you put yourself in a position to enjoy a financially secure retirement.
