When planning for your retirement, you’ll want to make sure you take into consideration the many hidden costs that can take new retirees by surprise. Hopefully you’ve been saving for your retirement through the years and have a tidy nest egg set aside. As you approach that wonderful day of declaring yourself retired, make sure you’ve factored in these costs:
• Inflation. You should count on inflation increasing by an average of three percent each year, meaning your cost of living will increase by three percent each year.
• Fees associated with senior living developments. These include fees for living in a gated community with security, the many amenities those communities provide (maintenance of the pool, tennis courts, golf course). Of special concern is senior developments with bond debt repayment written into the contract. These developments parcel the land out into lots and sell them, but if they can’t sell all the lots, they write the remaining debt into the contract so you and all the other property owners become responsible for paying off the bond debt over a stretch of time. If the senior housing development you are considering has something like this in it’s contract, walk away.
• Medical expenses. Chances are your health will decline at some point in your retirement, and your medical needs will increase. Try using the online retirement health care cost calculator provided at https://powertools.fidelity.com/healthcost/intro.do to figure out how much you should put aside for medical expenses during retirement.
• Realize Medicare and Medigap will not cover all your medical expenses. These programs will probably cover about half of your medical expenses over the course of your retirement. You will need to set money aside for these costs.
• Costs associated with outliving your spouse. If you are not the primary bread-winner, you may face troubles if you outlive your spouse and are heavily dependent on social security. While after the death of your spouse, social security may still pay up to two-thirds of the amount you and your spouse would have collected together, it usually costs three-quarters as much to live as a single person as it does to live as a couple, meaning the remaining spouse loses out financially.
• Calculate out what fees will be charged – including taxes – on money you take from investments during the years of your retirement. You may want to switch several of your investments to accounts where you pay taxes now – not at the time of withdrawal – to prevent losing a significant portion of your retirement income to fees and taxes.
• Check the fine print on “no fee” retirement investment plans. Usually some sort of cost is buried in the plans somewhere. Make sure they aren’t higher than what you’d pay in a traditional account.
It’s always wise to consider the costs before declaring it’s your last day of work! Hopefully this primer helped you prepare for that exciting day.
