While planning for retirement, your main focus is contributing funds to your accounts to build your nest egg. However, there are several different factors that need to be revisited throughout your decades of retirement planning. Below we discuss three factors you forgot to consider when planning your retirement.
1. Healthcare Costs
Healthcare costs are one of the most commonly forgotten elements of retirement planning. As you age, you will inevitably incur more medical expenses since you will experience more health issues. Once you hit age 65, you can take advantage of Medicare for insurance, but you will still have to pay some insurance premiums, prescription medications, co-pays, and other out-of-pocket costs. Fidelity’s Retiree Health Care Cost Estimate finds the average retired couple, both age 65, in 2022 could spend $315,000 after-tax on health care expenses in retirement. In addition to doctor’s visits, you also need to consider long-term care expenses. At a certain point in your life, you may have to reside at an assisted living facility, nursing home, or hospice care center. These facilities are not covered by Medicare, so you may have to pay out of pocket or purchase long-term care insurance.
2. Taxes
If you have a combination of retirement accounts, they are affected by taxes differently. Your Roth 401(k)s and Roth IRAs are funded with after-tax dollars so they can be withdrawn tax-free once you’re older than 59 ½ under most instances. However, your 401(k)s and Traditional IRAs are funded with pre-tax dollars, causing any withdrawals to be taxed based on your income tax bracket when you’re in retirement. It is extremely important to keep the amount you will have to pay in consideration since they can quickly eat into your nest egg without the proper calculations and expectations.
3. Inflation
As each year passes, the cost of goods continues to increase due to inflation. The average amount of inflation is 2% to 3% annually and is measured by the Consumer Price Index. To have a better idea of what your retirement savings can afford you in retirement, you have to consider the inflation of the cost of goods and living expenses. If you do not consider inflation in your retirement planning, there can be massive discrepancies in your expenditures once you’re in retirement.
There are many factors to remember when planning for retirement, but it can be easy for a few to slip your mind. By using a financial advisor, you can make sure all factors are top of mind. Our advisors at Plan A Wealth Management are here to make sure you are meeting your retirement planning goals and take the retirement planning off your plate. Schedule a consultation with Plan A Wealth today.
Sources:
https://www.businessinsider.com/personal-finance/things-forget-retirement-planning-2020-11
https://www.medicare.gov/basics/get-started-with-medicare/sign-up/when-can-i-sign-up-for-medicare
https://www.fidelity.com/viewpoints/personal-finance/plan-for-rising-health-care-costs