Retirement Planning is not Just About Growing a Nest Egg
When the subject of retirement planning comes up, a lot of the discussion revolves around how much money will be needed in retirement and how to invest to reach that amount. That is part of the process but consider what you do not know now and changes that can impact your retirement lifestyle considerably later. Some of these can be planned for, as they simply require increasing your estimate of necessary income in retirement or insuring around extra costs.
Taxes on Social Security
While this article can tell you about current income taxation of social security benefits, laws can change. As the national debt continues to balloon and social security funds are depleting, benefits will undoubtedly change, but taxes can also increase in the future. Currently, federal income taxes on social security benefits can be levied on as much as 85% of your social security incomei.
- Filing as an individual – if you are filing as an individual and your combined income is between $25,000 and $34,000, you may be taxed at the federal level on 50% of your social security income. Combined income is your social security income plus other taxable income from self-employment or other sources. If your combined income is more than $34,000, 85% of your social security income is taxable.
- Filing jointly with spouse – the same breakouts and tax rates apply on the combined income of the spouses on the joint return.
Thirteen states also currently tax some portion of social security benefits, so check your state. Know that they too could increase rates in the future as government budgets keep rising with tax income not paying all of the bills.
In your tax planning discussions with tax advisors, discuss different retirement account options and how to adjust income in retirement to minimize taxation of social security benefits.
Healthcare Services not Paid by Medicare
While Medicare takes care of some medical expenses, there are many expenses that are not covered. Those who have Part A, Part B, and a Supplement Insurance plan C, F, or G, can have extra coverage, but there will still be limitations on both what is covered and how much these resources will pay.
Consider the addition of a Health Savings Account (HSA) to your current financial planning. You can fund the HSA with tax free dollars to build a substantial fund against which you can draw in retirement to pay expenses not covered by Medicare.
Even if you take care to get the mortgage paid off before retirement, do not underestimate the cost of home maintenance over our ever-lengthening lifespans in retirement. The home is already old, and then it ages more along with you in retirement. Besides minor ongoing maintenance, there can be replacement of major appliances, heating and air conditioning, and roofing.
The plan for this is just to make sure you also build up a healthy emergency fund for maintenance and major repairs. Separately accounted for, you can manage it so that you will not run into shortfalls during your fixed income years.
None of these individually may seem that concerning, but if all three hit you in retirement, and they can, you will no doubt wish you had included them in your retirement planning.