Retirement can bring a lot of joy or stress, depending on how you prepared for it. In this article, we’ll cover some of the hidden costs of retirement that people generally don’t talk about. These costs can blindside you, so you should aim to plan ahead. Be sure to read through to the end to learn about the top hidden cost that most people overlook!
Contents
Health Care and Long-Term Care Costs
If you retire before age 65, chances are you’ll get on Obamacare or an exchange plan that may cost anywhere between $700 and $900 per person every month. Consider planning for that large expense in those early retirement years. When you’re eligible, you’ll get on Medicare, which has many options such as Medicare A, B, and D, an Advantage plan, and supplemental coverage. All of those cost different amounts, and your income dictates what you’ll pay for that coverage. With all this in mind, your Medicare expense should be factored into your budget throughout retirement.
Finally, many families have concerns about long-term care. If you’re in your nineties or beyond, you may not be able to live independently at home. In those cases, you may incur the cost of a long-term care facility, home health care, or similar services. Those expenses can be significant, so consider how your retirement plan might provide sufficient resources in late life to cover those costs. This can help prevent you from being a financial burden on your heirs.
Taxes
Few people consider taxes in retirement. Many people fail to fully plan for taxes in retirement because they assume that without a paycheck, they’ll be in a lower tax bracket than they were during their working years. While this is true for some, it may not apply to everyone throughout retirement. The majority of successful retirees, especially those who have the bulk of their wealth in IRAs or 401Ks, might not find themselves in a lower tax bracket in retirement.
Since every dollar from an IRA or 401K counts as income, you may find yourself in a higher tax bracket in retirement, particularly when minimum required distributions kick in at age 73 or 75. If you have a nice nest egg in IRAs or 401Ks, you could face extremely large RMDs in late retirement that might push you up a tax bracket and increase your Medicare premiums. As you prepare for retirement, accounting for these factors is essential.
Many Americans fail to get the maximum benefit out of Social Security because they start claiming it at the wrong time. For many Americans, it might make sense to claim Social Security as late as possible. However, for Americans with a net worth of over $3 million, it could be advantageous to claim early. In either case, not having a claiming strategy for your Social Security might lead to significant missed opportunities, potentially costing tens or hundreds of thousands of dollars in retirement.
The amount you can receive in Social Security throughout your retirement can make your 401K look insignificant. Ultimately, you’ve paid into Social Security over time, and you deserve to maximize the value of your benefits.
Inflation
Do not underestimate inflation in your retirement planning! Over the last few years, we’ve seen high inflation due to COVID-19, major increases in interest rates, and more. It doesn’t seem like prices are coming down, and that aligns with historical trends. Factor inflation into your retirement budget every year, so you can maintain your lifestyle.
Failing to Create & Follow a Budget
In retirement, we want you to live the lifestyle you desire and enjoy all the hobbies you’ve dreamed of for your retirement. However, if you’re doing this without a coordinated budget, there’s a good chance you may run out of money well before you’re planning to. A coordinated budget helps you know how much you can spend confidently, without pulling too much out of your accounts too soon. Your budget is one of the most important numbers in your retirement plan, so aim to have a coordinated budget before walking into retirement.
The hidden costs of retirement can catch you off guard, but with careful planning, you can navigate them effectively. At REAP Financial, our fiduciary advisers work with clients to create personalized retirement plans that consider health care costs, taxes, inflation, and more. Our comprehensive strategies are designed to help high-net-worth families achieve confidence and peace of mind in retirement.
Located in Austin, Texas, we specialize in guiding clients through every aspect of retirement planning. Schedule a complimentary consultation today to learn how we can help you address hidden retirement costs and achieve your ideal retirement lifestyle.
Get in Touch with REAP Financial
Give us a call at (512) 249-7300.
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REAP Financial
9414 Anderson Mill Rd #100
Austin, TX 78729
Chris Heerlein, a Texas native, is the CEO of REAP Financial and founder of REAP Private Client Group (RPCG), specializing in wealth creation, preservation, and growth for affluent individuals, business owners, and executives. RPCG provides expert financial and investment advice, advanced tax strategies, business succession planning, and unparalleled client service. Chris is a trusted financial advisor, author of Divorce With Dignity (2019) and Money Won’t Buy Happiness But Time to Find It (2017), and a columnist for Kiplinger Personal Finance Magazine.
He has been featured in Fortune, Money Magazine, Bloomberg Businessweek, and U.S. News & World Report. Chris also hosts Wealth Radio on NewsRadio KLBJ and is a sought-after speaker. Based in Austin, Texas, he lives with his wife, Hannah, and their three children and actively supports charitable causes.
