You will spend a significant portion of your life at work. retirement savings. Once you reach that milestone, you’ll want to be confident that your nest egg is large enough to cover your needs during your golden years.
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When planning for retirement, it’s important to anticipate expenses that can eat into your savings. Here are seven expenses that can eat up your retirement savings. and how to plan them.
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health care
Even with Medicare, out-of-pocket medical costs can be high, says Taylor Kovar, a certified financial planner and CEO. money couple and Kobar Wealth Management. “This includes the cost of prescriptions, surgeries and long-term care,” he said.
HealthView Services Financial estimates that a healthy 65-year-old couple who retires in 2021 is likely to spend between $156,208 and $1 million on retirement health care costs, depending on where they live and for how long. I understand.
How to plan: Kovar said it may be a good idea to set up a health savings account (HSA) or similar fund specifically for medical expenses. “Reviewing your health insurance regularly and considering supplemental insurance can also help reduce these costs,” he added.
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home ownership
If you own a home, this can be another big expense that puts a strain on your retirement savings. “As homes age, major repairs like roof replacements and plumbing issues become more frequent,” says Kovar. From 2016 to 2020, Americans 65 and older spent an average of $16,880 annually on housing-related costs, according to the U.S. Bureau of Labor Statistics.
How to plan: To anticipate and spread these costs, Kovar recommends setting aside a home maintenance fund and conducting regular home inspections.
inflation
According to partner and investment advisor Jeff Bush, inflation can have a significant impact on future savings, as large withdrawals are required to offset rising costs of living. improve your finances. “This can be particularly problematic if your portfolio consists of fixed income strategies that cannot keep up with inflation by increasing their income overtime,” he said.
How to plan: To cushion inflation, Bush said, it may be better to invest some of your portfolio in stocks, which have historically provided better returns than bonds or cash. In general, maintaining a diversified portfolio can be of great help in the long run, he added.
Adult children (and their children)
From student loans to cell phone bills, many retirees are struggling with themselves financially support adult children, or even their grandchildren.a Merrill Lynch research According to research, in 2018, 79% of parents provided financial support to their adult children, totaling $500 billion annually.
How to plan: To ensure this support doesn’t derail retirement plans, Kovar said it’s important to set boundaries and openly discuss finances with your family.
tax
Once you start withdrawing money from your retirement account, you will (in most cases) have to pay taxes on the distributions. You may also have to pay some taxes. social security benefits. And Bush said many retirees live on fixed incomes, so higher taxes immediately reduce their take-home pay. That’s why tax planning is so important for retirees.
How to plan: Bush said one way to offset taxes in retirement is to convert your retirement account to a tax-free account using a Roth IRA conversion. “This strategy converts taxable retirement accounts into tax-free withdrawals in the future,” he explained. “If you’re still in the accumulation phase of your plan, you may want to consider contributing your retirement savings to tax-free investments such as a Roth IRA or Roth 401(k).” Experts to optimize your tax strategy It is also a good idea to consult.
market downturn
To achieve your retirement savings goals, you should invest some of your funds in risky market securities. Over time, this will yield greater returns, but short-term market downturns can have a significant impact on retirement savings, “especially if they occur just before or during retirement.” Bush said.
How to plan: If you’re in or near retirement, Bush suggested setting aside at least three years’ worth of income in a low-volatility account that can produce stable results. This gives the remaining assets in your portfolio time to recover through a down market and eliminates the need to liquidate assets at a loss to generate income. “Rebalancing your portfolio as needed also helps keep assets in line with your income needs and manages market risk,” Bush added.
longevity
For better or worse, thanks to advances in medicine and technology, people are living much longer these days than ever before. According to , the estimated life expectancy of a baby born in the United States in 2021 is just over 76 years. National Center for Health Statistics.
That may mean you have more time to enjoy your golden years, but it also means your overall expenses will increase over your lifetime. “With many people living into their 90s and even 100s, it’s important to plan for a longer retirement than expected,” says Kovar.
How to plan: To deal with the increased costs associated with long-term living, Kovar recommends retirees do the following:
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Always have a rainy day fund available.
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Review and adjust your financial plan regularly to keep up with changes in your life.
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Consider long-term care insurance or other insurance that can offset significant unexpected costs.
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Continue to educate yourself about financial trends, especially those related to retirement benefits.
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