Health care, traveling and new hobbies are just some of the retirement expenses you need to plan for. But what are you missing? It’s important to get as specific as possible with your goals to create a realistic plan for how much money you will need. Retirees often don’t realize how their expenses are going to change. We’re going to look at five major retirement expenses people overlook and how to make sure your retirement budget accounts for all of these costs.
- Long-Term Care
Long-term care is one of the expenses Medicare generally does not cover. This includes chronic medical conditions, like Alzheimer’s or dementia, and the cost of nursing home care and home-health care later in life. Long-term care insurance was developed to fill this void and help retirees manage the impact of rising healthcare costs. While some employers offer long-term care insurance as part of their benefits package, most people buy it through an insurance agent or financial professional. The right policy and coverage can help you and your spouse choose the type of care you prefer—when and if you need it. Typically, the younger you are when you purchase the policy, the lower the monthly premium.
- Taxes
Federal and state income taxes are not an expense that ends when your working years end. If the majority of your nest egg is in tax-deferred accounts like a traditional 401(k) or IRA, that money is not all yours. The IRS will tax any withdrawals from those accounts, and you’re required to start taking that money out at age 72. Depending on your withdrawals and retirement income, your Social Security check might be subject to taxes as well. At Zephyrus Financial Services, we help determine the most tax-efficient way to withdraw money from your retirement accounts.
- Inflation
Many clients are surprised to learn inflation rates can have a significant impact on their buying power. While no one knows where inflation will go in the future, the average annual inflation rate is about 3%. This may not seem like much, but the costs can add up when you look 30 years down the road. Inflation can affect your investments. Your rate of return can be reduced. It may also put your purchasing power at risk and influence the actions of the Federal Reserve. To help with the impact of inflation on retirement income, you should have a well-allocated investment portfolio that includes a risk-adjusted growth component.
- Longevity
Retirement looks much different than it did 30 or even 20 years ago - people are living longer. While this means more time to enjoy friends, family and hobbies, a long life also means there is more time to eat away at your retirement savings and more years to cover expenses. When calculating how much money you might need and how long your income may last, we account for your current health, family history and expected longevity. From there, we monitor and adjust your strategy as needed to help keep you on track.
- Helping Adult Children
Since the pandemic started, we’ve seen nearly 27 million young adults move in with their parents, exceeding the previous record set during the Great Depression. Not only that, parents are paying for their kid’s college tuition, student loans, groceries and cell phone bills! While it’s ok to help your children, we don’t want you worrying about your long-time financial situation or having to delay retirement. This expense can be avoided entirely by saying no or using it as the opportunity to teach your child financial lessons like budgeting, managing credit cards and investing. If you’re struggling in this area, a financial professional can work as the mediator for the parent and child. They can also help the parents figure out how they may be able to help out their adult children without sacrificing their retirement savings.
We incorporate all of these expenses and more into a customized financial roadmap for each of our clients. Our unique 401(k), tax management and legacy planning strategies set us apart as goal-oriented financial advisors. Our favorite call to make is when we get to tell a client we have reached or surpassed their goals and dreams, and it’s time to dream bigger and set new goals! Click here to schedule a time to meet with us to talk about your dreams, set goals and create a roadmap to reach those goals.