If your retirement plan doesn't include these 3 things, make a new one – the motley fool

Retirement planning is complicated because there is so much guess involved. It's easy to get overwhelmed and try to estimate your life expectancy and cost of living, and this can cause you to overlook other key factors affecting the amount of money you need.

Here are three factors that should definitely be included in your pension scheme. If your current plan doesn't take them into account, make some changes.

1. Inflation

The cost of living increases over time, so what is enough to cover your living costs today will not cover them in 10 or 5 years. If you have not considered inflation in your pension plan, you will almost certainly end up running short in your recent years.

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Inflation, like most factors affecting the pension, is impossible to predict with accuracy. The best thing we can do is look at historical data and provide educated guesses about the future. Standard wisdom is to assume a 3% inflation rate per year.

So if your cost of living is $ 40,000 this year, plan to be $ 41[ads1],200 next year, $ 42,436 next year, and so on. However, this is only an estimate. If you want to be on the safe side, consider using a 4% annual inflation rate instead of adding extra cushion. Many pension calculators already have a factor in inflation, or allow you to estimate an estimated inflation so you don't have to do all this math for every year of your pension.

2. Health Costs

A 65-year-old couple who retire in 2018 will need to estimate $ 285,000 to cover their healthcare retirement expenses, according to Fidelity, and some sources are even higher. HealthView Services estimates that a 65-year-old retired couple may need as much as $ 363,000 to cover retirement health care costs. These figures do not include specific expenses, such as long-term or dental work. If you need these services, expect your health costs to climb even higher.

Medicare will cover some of your healthcare costs in retirement, but there are still deductions, prizes and coinsurance coming out of your pocket. In addition, there are things that it does not cover at all, such as dental care, long-term care and hearing aids. You need to find a way to cover these costs on your own or buy additional insurance to cover coverage failures.

If you have not planned the cost of healthcare in retirement, it is now time. Consider increasing your retirement allowance to take into account the extra money you need to fund healthcare. You can also open a health savings account (HSA) if your health insurance is a high-quality health plan (HDHP). Contributions to these accounts reduce taxable income this year, they never expire, and the money is tax-free when you use it for eligible health care costs. Those who believe they are in danger of needing long-term care should consider buying a long-term care insurance as well. And of course, you should prioritize your health at all ages to reduce your health costs.

3. Tax

Unless you have all your pension savings in Roth accounts, you will owe some taxes in retirement. If you have not planned to pay tax on pension income, you can clear your pension savings faster than you expected. But you can't know how the income tax brackets will change, or exactly how much you need to cover your living expenses each year.

The good news is that many retirees spend less money in retirement and some end up with lower income tax bracket than when they worked since they no longer receive wages. At retirement, you choose how much money to deduct the savings each year to live on, giving you some control over which tax console you fall under. Generally, the pensioner's cost of living goes to his younger days when they paid bills, increased children, and saved their futures at the same time.

You can estimate your taxes on retirement by calculating your expected taxable income on retirement and looking at current tax brackets, but keep in mind that these may change. If you're worried about getting up short, you might want to put aside more than you think you need to be safe. Working with a finance planner only a fee is another option if you are intimidated by the tax aspect of retirement planning.

You will not reach retirement and find out that you have not been saved enough to cover your living expenses. If your current pension plan does not take into account inflation, health care or taxes, put aside some time to create a new plan that includes them. When you come to retirement, you will be grateful you did.