Are you preparing for retirement? If so, one of your most helpful planning steps may be to project your income and develop a budget. Your budget can help you identify gaps in your planning and help you stay on track with your savings.
For your budget to be accurate and effective, you need to be aware of some the nuances of retirement income planning. If you’re caught off guard, you may be inaccurate in your income projections. That could have a substantial impact on your ability to reach your retirement goals.
Below are three facts that often surprise retirees. Be sure to account for these in your retirement income planning. If you don’t, your budget may not be accurate.
Social Security is taxable.
Just because you’re no longer working doesn’t mean you’re done paying taxes. You could pay taxes on investment income, pension payments and yes, even Social Security benefits.
The amount of tax you pay on Social Security benefits depends on your “combined income,” which Social Security defines as adjusted gross income plus non-taxable interest plus half of your Social Security benefit.
If you are single and your combined income is between $25,000 and $34,000, up to 50 percent of your benefits could be taxable. More than $34,000, up to 80 percent is taxable. For married couples, the 50-percent taxable range is between $32,000 and $44,000. If your income is more than $44,000, up to 80 percent of your benefits could be taxable.1
Medicare doesn’t cover everything.
Medicare can be a very effective tool for managing health care costs in retirement, but it doesn’t cover everything. In fact, Fidelity researchers estimate the average 65-year-old couple will spend nearly $260,000 out-of-pocket on health care expenses in retirement. That’s for things Medicare doesn’t pay for, such as premiums, copays, deductibles and more.2
Also, Medicare generally doesn’t pay for long-term care. It may cover some limited long-term care expenses as long as they are directly tied to a stay in a hospital. However, many people need long-term care for several years. Medicare may only partially pay for the care for a few months.
Your income may need to last 30 years or more.
According to Social Security, the average life expectancy for a 65-year-old woman is 86.6 years. That number is 84.3 years for a man. There is a 1 in 4 chance a 65 year old today will live to age 90 and a 10-percent chance that he or she will live to age 95.3
Simply put, it’s possible your retirement could last three decades or longer. You could very well spend more time being retired than you spent saving for retirement. It’s important your budget and other planning documents take longevity and life expectancy into consideration.
Are you prepared for a long retirement? Does your budget factor in taxes on Social Security benefits? Do you have a plan to pay for health care costs that aren’t covered by Medicare?
If the answer to those questions is no, contact us at Focus Financial Group. We can work with you to analyze your needs and develop a plan give you the income you need for a long and happy retirement.
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15629 – 2016/4/29
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