Jerry Yu: Approaching retirement? It’s crucial to consider these often overlooked expenses in your planning.

by Jerry Yu

Financial services marketing can be seductive and somewhat deceiving. In brochures and on websites, you often see a happy couple lounging on a calm white beach. They’re holding hands like love-struck teens and sipping icy cocktails without a care in the world.  

If you believe the marketing hype, once you’ve retired, the soul-sucking, stress-filled days of working at a job you don’t like with people you don’t like are over. Instead, you’ll fill your hours with endless road trips, sunshine, and pedicures. Without a bothersome job to siphon off all your time, you can finally finish those projects around the house, catch up on your reading, or visit your family as often as you want.

Regrettably, retirement for most Americans is far from the idyllic fantasy they’ve envisioned. The lack of a steady income source can swiftly disrupt even the most meticulously crafted plans with unexpected expenses.

Misconceptions about retirement planning create a disconnect between the income people believe they will need when they no longer get a paycheck and their typical retirement expenses. Let’s look at just a few everyday expenses many seniors fail to include when estimating how much money they’ll need once they stop working.

Senior health care expenses- the ticking time bomb.

A recent report from RBC Wealth Management projects the lifetime cost of healthcare for a HEALTHY senior aged 65 could be well over $400,000. That figure doesn’t even factor in long-term care expenses, which could run over $100,000 per year!

Most Americans know from personal experience just how expensive medical care can be. We worry about how we will pay for care once we’re on a fixed income, yet most of us are not doing anything about it. Only around 56 percent of seniors surveyed say they have included healthcare expenses in their financial plans. Those who have included health care admit believing they have significantly underestimated what they will spend. And they likely have.

Financial industry experts estimate that a healthy couple will spend around $5,700 each on essential medical care at age 65. These are out-of-pocket costs for treatments and services not covered by Medicare.

Medicare is more limited than many people imagine, covering only a certain number of approved procedures. If you need specialized treatment, drugs, or equipment, you will usually have to pay for those items yourself. Costs can add up quickly, and you may have to spend more of your savings.

Also, Medicare pays for only the first 20 days of a covered stay in a nursing home.  After that, provided you are approved, you will have substantial co-pays for days 21-100. If your nursing home stay lasts more than 100 days, you will have to pay those expenses yourself.

While it’s difficult for most of us to imagine that we will need long-term care, statistics indicate that around 70% of all Americans end up needing it.

For these reasons, it’s essential to consult with your advisor and ensure your retirement plan focuses on accurate and realistic estimates of potential medical expenses. Consider discussing long-term care insurance or other products that can help mitigate high medical costs.

Don’t forget about taxes.

Many people believe in the “theory of decreasing responsibility,” which posits that taxes and expenses will decrease as you age. People who cling to this theory do so because they believe that since their income will be less once they quit working, they will obviously pay less tax. The belief that retirees pay less tax may be a logical fallacy that will come back to bite you.

When you review historical data over several decades, you can see that taxes nearly always increase. America’s budget deficit in 2 4 is over $34 trillion and climbing. How likely do you think it is that the government will not hike taxes? The belief that retirees pay LSS tax may be a logical fallacy that will come back to bite you, emphasizing the need to plan for potential tax increases in your retirement strategy.

You will need to build a solid retirement blueprint that anticipates the inevitability of tax and fee hikes. Additionally, you must consider your state’s tax requirements as well. Several states tax retirement income more heavily than you might imagine. For instance, only a handful of states do not require retirees to pay taxes on their pension, Social Security, or qualified plan income. The rest tax the money you’ve earned, sometimes heavily.

Have you thought about energy and utility costs?

Inflation, wars, social unrest, green initiatives, and supply chain disruptions have all contributed to increasing fuel, electricity, and transportation prices. Rising energy costs are likely to continue, and you would do well to anticipate such hikes in your planning strategy.

Bottom line. It’s nearly impossible to anticipate every financial issue you’ll have in retirement. But you can make a blueprint that deals with the most common expenses. If you want to avoid running out of money when you retire, always consider potential tax increases, medical expenses, and increases in the price of gasoline and other resources; partnering with a trusted, competent retirement advisor can help you hedge against potential threats to your income and locate any gaps in your plan.