You put away money during your working years in order to be able to enjoy a comfortable retirement and leave a legacy behind. Unfortunately, your road may not be as smooth as you would like. In our last post, we covered 3 potholes or obstacles to plan for in retirement. Here are 4 more of them:
4. Tax on retirement distributions. At some point in retirement, the IRS will require you to take out required minimum distributions from your retirement accounts. Most of these funds have never been taxed before and so they are fully taxable when you withdraw them and may leave you with a nice tax bill to deal with on your tax return. Your wealth plan should have factored in anticipated taxes as part of your retirement expenses. If you didn’t before, do it now to give you a clear picture of your net worth.
5. Tax on social security. You paid into the Social Security Trust Fund for years and now it’s time to reap your reward. But there is a caveat. If you have other taxable income there is a good chance that some, if not all, of your social security proceeds will be taxable as well.
6. Taking care of others. You may have retired, but the call of the family still beckons. A Pew Research Center study found that 22.7% of adults ages 85 and older lived in a multi-generational household, while 23.6% of adults ages 25 to 34 did so. The numbers are higher if you consider those who you are supporting, but live outside the home (in a dorm or nursing home). You may still have elderly parents who need help and that will mean time and money. In this economy, you may also have adult children who may not be in the stable economic condition that you had envisioned when you first planned your retirement. Some grandparents are even caring for grandchildren. Even in good times, there is the job of every grandparent to spoil their grandchildren. Some spoil them more than others. You know who you are.
7. Inflation. This is the silent expense. In our current low interest rate environment, you may have forgotten the power of inflation to take a bite out of your ability to buy the things you need and want. However inflation, like so many things in the economy, runs in cycles and we can be pretty certain that it will be back. And when it rises again it brings with it higher prices and those dollars you have saved up just won’t purchase what they once did.
Understanding and planning for these potholes will make your retirement journey a lot smoother and a ton more fun than fixing that flat caused by the big hole in the road you forgot to avoid. Darn Potholes!!!
