Even if you’ve contributed to your retirement accounts consistently for years, you know how much you’ll receive in Social Security benefits and you have a good understanding of where your income will come from when you’re no longer working, retirement can still surprise you. There are several financial and emotional considerations that many people don’t account for.
So, it’s time for a retirement checkup!
Here are 6 things to consider before pivoting into your Golden Years:
1. Taxes
Taxes don’t end when you stop working. On the contrary, taxes need to be managed – and if they aren’t, the IRS can take a much bigger bite than you may think.
First, any withdrawals from traditional Individual Retirement Accounts (IRAs) and employer-sponsored retirement plans like 401(k)s are taxed at the existing tax rate for your retirement income. Only Roth IRAs and 401(k) withdrawals are tax-free, assuming you’ve held them for at least five years.
Second, pensions are taxed as well.
Third, your Social Security benefits are tax-free only if you don’t work and earn while receiving them. If you do, and earn above the IRS’s limit, your Social Security benefits are subject to taxation.
Currently, if you are married and filing a joint return, and your combined income is between $32,000 and $44,000, as much as 50 percent of your Social Security benefits could be subject to tax. If your combined income is more than $44,000, up to 85 percent of your benefits could be taxable. These thresholds vary according to filing status and are revised periodically.
At PAX Financial Group, we’re asked about Social Security often. For more on these benefits, click here.
2. Healthcare
Healthcare is one of the most expensive areas of the budget for senior citizens – and it’s only partly because the number and severity of medical conditions tends to rise as we age. The other, more crucial reason is healthcare and insurance cost a lot.
Medicare may cost more than you thought. Many people operate under the common misconception that Medicare is free. Only Part A, which covers hospitalization, is free. Medicare recipients pay both premiums and a deductible for Part B, which covers doctor’s visits and related healthcare costs. The annual premium is currently $198. The current monthly deductible is $144.60, which rises incrementally for people with higher incomes.
Prescription drug coverage isn’t covered under Part A or Part B, so people wanting prescription coverage must purchase it separately. The average cost of prescription coverage, known as Part D, varies according to the plan. The average cost of monthly premiums is $40 per month, and deductibles can climb to several thousand dollars per year.
Finally, many retirees obtain Medigap or Medicare Advantage plans to supplement Medicare Parts A and B. These, too, may require premiums and deductibles, depending on the plan you choose.
At PAX Financial Group, we also get a lot of questions about Medicare. For more information on these benefits, read our recent blog post: Medicare FAQs: PAX Financial Group Answers the Most Common Questions.
Ready for a retirement checkup? Contact PAX Financial Group to see how we can help.
3. You Didn’t Get as Much as You Were Hoping from Selling Your Business or Home
Many pre-retirees think of equity built up in their business or home as a cushion or perhaps a basic building block for retirement. But both businesses and homes are subject to market fluctuation. You may receive less than you expect. Make sure to schedule an annual retirement checkup to discuss any changes that may have occurred in your life.
The forces that affect what you receive in proceeds may be out of your control, and include the overall economic environment, the outlook for your business sector, real estate prices when you sell your home and more.
It’s prudent to work with a realistic and current estimate of what your business and home is worth. But conditions can also change quickly. Don’t place all your retirement eggs in the basket of business valuation or home prices.
At PAX Financial Group, we specialize in helping business owners with their financial planning needs. For more on what this looks like, click here.
4. You Need More Money Than Expected
Life doesn’t end at retirement. You may need more money than you expected to do what you want, such as travel or participate in leisure pursuits.
But it isn’t just leisure activities that might cost more than expected. Home repairs, for instance, don’t stop just because you’re retired. The average family spends roughly $1,000 per year on home repairs. You also may have to renovate your home to accommodate aging-related changes. Bathroom renovations and wheelchair ramps can cause more expense than you may anticipate.
5. You’re Bored
Many retirees become bored when they’re around the house all day. So, it’s important to have a plan for how to structure your day in retirement when you’re no longer working.
You may take up new hobbies, such as photography or cooking, or you may return to old hobbies, such as golf or other sports, more intensely than when you were working. You might want to see family and grandchildren more than you did. For more ideas, read our recent blog post: What Does Your Dream Retirement Look Like? Then make sure these plans are actually attainable, both financially and because of changes in the world. For example, the pandemic has affected international flights, entertainment activities and even visiting loved ones in some circumstances.
If you haven’t had a retirement checkup since the Coronavirus pandemic began, you may want to now.
6. Your Friends and Family Aren’t Around or Available
Not having people to spend time with can be a big issue and lead to loneliness and depression. You may have dreamed of retirement as an extension of happy weekends and evenings with friends and family around the table, chatting and watching favorite television shows or movies.
But once you’re actually retired, many retirees realize that their friends and family aren’t around or available in the way they had hoped. Not everyone will have the newfound freedom that a retiree has, so it’s important to consider who will have a schedule and leisure time similar to your own. You may need to take steps to develop new retirement friends.
We see this happen with many retirees and recently published an article on emotional retirement readiness. You can read it here: How to Emotionally Prepare for Retirement – Why Friends May be the Key.
Don’t Let Retirement Surprise You
The more you anticipate surprises, the more you can prudently cover them and prepare for a comfortable retirement. Consider the above factors into your retirement plan, and then review them regularly! Schedule an annual retirement checkup with your financial advisor at minimum to discuss any new concerns you may have.
For more on the financial and emotional planning needs of retirement, click here. It’s never too early to start planning for the future. Contact PAX Financial Group and get the conversation started.
This material is provided by PAX Financial Group, LLC. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. The information herein has been derived from sources believed to be accurate. Please note: Investing involves risk, and past performance is no guarantee of future results. Investments will fluctuate and when redeemed may be worth more or less than when originally invested. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All market indices discussed are unmanaged and are not illustrative of any particular investment. Indices do not incur management fees, costs and expenses, and cannot be invested into directly. All economic and performance data is historical and not indicative of future results.
