3 Unexpected Retirement Costs That Can Shake Up Your Finances
For most Americans, retirement is a time in life that is spent living on a fixed budget. You have saved for decades, setting aside a nest egg so that you can enjoy retirement without having to work. While many Americans will choose to work during retirement, it is often to help fight boredom more than it is done to pay the bills. With all the time spent saving, it would be unfortunate to let unexpected costs shake up your retirement finances. Fortunately, with a little knowledge you can avoid these pitfalls.
Health Care Costs
As Americans approach retirement, many of them look forward to taking advantage of social safety nets such as Social Security and Medicare. The latter of these is designed to provide seniors with affordable health care coverage, but it is not designed to cover everything that seniors might require in terms of health care.
Medicare provides coverage for annual check-ups and other hospital stays, but as US News and World Report states, it does not provide coverage for dental care, dentures, hearing aids, foot care, and long-term care needs. The article from US News also states that the average couple faces upwards of $275,000 in health care costs throughout retirement. This can include long-term care accommodations, which are particularly costly. The national average for a semi-private nursing home in 2016 was over $6,000 per month. These costs are likely to come out of your pocket, so it is important to plan ahead for these possible expenses.
Home and Care Maintenance
Owning a home is a great investment that can pay off in many ways during retirement. A home that is paid for is one in which you do not need to make monthly mortgage payments on, potentially saving you thousands of dollars each month. However, even a paid off home still costs money.
For starters, even when your home is paid off, you will still have to pay yearly property taxes. There is also the need to maintain your home, from the lawn and landscaping to HVAC systems, appliances, roofing, siding, and windows.
Uncle Sam's Take - Taxes
On a final note, many Americans fail to consider how taxes will continue to impact them during retirement. Tax codes vary from state to state, with some states taxing neither individual income or retirement benefits, while other states tax one or the other. CNBC points out that even though you may be in a lower tax bracket during retirement, it does not mean you are immune from taxes.
Only seven states in the United States have no individual income tax and no taxes on retirement income sources. These states are Alaska, Florida, Nevada, South Dakota, Texas, Wyoming, and Washington. States like Illinois, Mississippi, New Hampshire, Pennsylvania, and Tennessee exempt pension incomes for some qualifying individuals.
Avoiding tax issues during retirement is not as simple as moving to a new state though. You will want to consider both the individual income tax and retirement tax status of any state you may consider for relocation, but also the cost of local taxes and property taxes as these will also take a bite out of your retirement income.
Preparing for these unexpected costs in advance can help you avoid seeing your finances stumble during retirement.