Whether you are an annuity holder approaching the age of 65, or a younger structured settlement recipient considering selling your payments for cash now, your retirement should never be too far out of your thoughts or your long-range plans. Retirement is one of the great rewards of hard work and a well-lived life, but it also has a wide range of expenses that must be taken into consideration. Here are five retirement expenses you should never forget to take into account:
1) Healthcare Costs
The great news is that we are living longer and longer. The downside is that we also frequently underestimate how much those extra years may cost in health-related expenses. Many people planning for retirement estimate that they’ll spend $50,000 in out-of-pocket healthcare costs. But studies have shown that you may spend as much as 4 times that amount!
2) Home and Mortgage Costs
A second large expense far too many retirement planners fail to take into consideration is their home and mortgage costs. Frequently these costs represent a sizable chunk of all monthly budgetary expenses, especially if an aging home requires unavoidable repairs. Smarter planners take these costs into account when they hatch their retirement plans. They might even move to a smaller home, or a lower-cost neighborhood, to mitigate any risk to their long-term retirement savings.
3) Social Security Taxes
Did you know Social Security payments can be taxed? It’s extremely unfortunate, but also true, that up to 85% of Social Security benefits are taxable. So if your Social Security is part of your retirement plan – and of course it should be! – make sure your planning takes into account this potential loss to your end-of-month bottom line.
4) Taxes on Withdrawals from Retirement Accounts
The second major tax to consider when planning for retirement is the money you may owe when you withdraw funds from retirement accounts like IRAs or 401(k)s. Some of this money has been building tax free for decades, but you may lose a sizable chunk of it upon cashing out – especially if you cash out a lot at one time, and income tax penalties come in to play.
5) The Cost of Inflation
While inflation isn’t a direct “expense”, like a purchase or tax, it has the same impact: leaving you with far less purchasing power than you initially thought. Let’s say, for example, that the historic inflation rate remains roughly 3%. That means that if you plan on needing $35,000 a year to live on in your retirement, you’ll need approximately $47,000 a year to live the same way within 10 years – and $63,000 a year to keep your standard of living within 20! The bottom line is that you must take inflation costs into account in your long-term retirement planning.
We are J.G. Wentworth, one of this nation’s largest purchasers of structured settlement and annuity payments, and we talk to thousands of folks every year who have long-term financial success on their minds. While the above information is no substitute for advice from a trained professional, we certainly hope you look at all your options and make the smartest choices when considering your retirement planning. If those choices are leading you to consider selling your structured settlement or annuity payments, please call us at 877-227-4713.
Nothing above is meant to provide financial or tax advice. You should meet with appropriate professionals for such services.