Have you thought about the expenses you might have during retirement that weren’t an issue during your working years?
You’ve probably considered whether your overall expenses will be higher, lower or the same, but you may not have dug into the details yet.
Here are a few costs that can sometimes catch retirees off guard.
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, along with federal and state tax rates, will determine how much you pay.
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 important to meet enrollment deadlines so you don’t get stuck paying late enrollment penalties for life.
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.
After decades of accumulating assets, retirement requires learning a new skill: preserving those assets while covering essential expenses and enjoying your free time.
Do you have questions? Reach out anytime.