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3 Hidden costs that can sabotage your retirement – Motley Fool



When you prepare to retire, there are dozens of expenses to consider. How much do you want to spend on hobbies and other activities? What about traveling? How will your daily living costs be changed?

About three-quarters of soon-to-be retirees say they expect their living expenses to either be reduced or remain the same at retirement, according to a Nationwide Retirement Institute survey. Although it is true that some of your expenses will decrease or be completely eliminated (you no longer need to spend money cleaning work clothes or buying expensive office supplies, for example), there are some hidden costs that can throw your entire plan out of whack if you don't prepare them.

  Autumn Leaves with Dollars Hiding Under Them

Image Source: Getty Images

1. Long-term Care

Seven out of 10 retirees can expect to need long-term care at some point in their lives, according to the Ministry of Health, and the average person needing long-term care will require it for about three years.

And it's not cheap. The average semiprivate room in nursing homes costs around $ 6,800 per month – or about $ 81,600 per year, according to HHS. At that rate, three years of care will cost around $ 244,800.

Medicare does not usually cover long-term care. While it will usually cover short stints in a skilled nurse whose care is medically necessary, it does not pay for care services – including assistance with basic activities such as dressing, bathing and eating. That means if you need long-term care, these costs will probably be paid out of your own pocket.

In the future, most retirees must have long-term care, so you should prepare for it. If you don't think you can afford a hundred thousand dollars out of your pocket, consider long-term care insurance to help you get a share of the financial burden. The coverage is costly (average 55-year-old couples pay around $ 2,000 per year in premium, according to the American Association for Long Term Care Insurance), but if you end up having several years of care, it can save you thousands of dollars.

2. Other Health Expenses

The average pensioner pays about $ 4,300 per year in healthcare expenses, according to a study by the Center for Retirement Research at Boston College.

While most retirees are eligible to register at Medicare at the age of 65, you are not financially hooked. Even with Medicare coverage, you are still responsible for all premiums, deductible, co-insurance and co-payments. Plus, Medicare doesn't cover everything so you can still face some extra costs.

Original Medicare, or Parts A and B, covers hospital care and doctor visits, but does not cover routine treatment such as dental or eye care or prescription drugs. Also, while most don't pay part A coverage, the default monthly premium for Part B is $ 135.50. In addition, you pay deductions for parts A and B. If you want D coverage for prescription drugs, it costs extra.

You can opt to opt for a Medicare Advantage plan instead, which can offer greater coverage but at a steeper price. Distribution plans are offered through private Medicare-approved insurance companies, so prices vary based on factors such as your location and how much coverage you want.

No matter what type of nursing plan you choose when you retire, it is important to prepare for these costs in one way or another – you cannot rely on Medicare to cover them all.

3. Pension Account Repayment Tax

When checking on the pension savings, it is easy to fall into the trap if you assume that the amount you have in your account is the amount you need to spend. But, depending on the type of pension account you have, Uncle Sam can take some of your earnings.

If your savings are stashed in a Roth IRA, you do not have to pay taxes on withdrawals because you were already taxed on your contributions in advance. But with a 401 (k) or traditional IRA, you can expect to pay income tax on the money you retire.

Like how you were charged in the working years, income taxes are based on the amount you are earning. For retirement, the income includes the amount you deduct from your pension accounts each year. Before you retire, it is important to understand which tax console you are in:

Tax rate For unmarried persons, taxable income above: For married couples who join, taxable income above:
10% $ 0 $ 0
12% $ 9700 $ 19,400
22% $ 39,475 $ 78,950
24% $ 84,200 $ 168400
32% $ 160,725 $ 321,450
35% $ 204,100 $ 408,200
37% $ 510,300
$ 612,350

Source: IRS.

Pension is an exciting – and expensive – milestone. Prepare for the daily costs, but also keep in mind the big expenses. The more prepared you are, the fewer financial surprises you encounter.


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