Five Costly Retirement Planning Surprises

Planning for retirement is likely to be the longest single financial task any of us will ever undertake. We’ll spend many decades anticipating our future retirement costs and needs, and always working to contribute to our various retirement accounts. We also will likely do many financial models and projections to comfort ourselves about our financial future.

Despite all this planning, however, there’s a chance you could be hit with a costly surprise that either you didn’t realize you should be planning for, or for which you simply prepared for inadequately.

Here are five possible types of retirement expenses that hopefully won’t come as a surprise to you.

• Ongoing Home Expenses. Many individuals end up paying off their home mortgages around the time they retire. But no longer owing any money on your home doesn’t mean that you won’t still have an ongoing financial obligation. Chances are your annual property taxes and homeowner’s insurance were part of your mortgage payment, and you’ll still need to pay your annual tax and insurance premiums even after your mortgage was repaid. Furthermore, as your home increases in value (which it’s still likely to do over the long term), your annual property taxes and insurance premiums are likely to increase as well. And don’t forget that the older your home gets, the more things you need to repair over time.
• Caring For Your Parents. As we have more and more health care advances and medical breakthroughs, average life expectancies continue to rise. While it’s good that we’re living longer, the longer we live the more money we need for retirement. If your parents haven’t saved enough, then the financial responsibility for their care may fall upon you.
• Caring For Yourself. As health care reform continues to evolve, there’s a great deal of uncertainty as to how much you’ll be paying for health insurance in the future. By the time you’re ready to retire you could be hit with significantly higher health insurance premiums and health care costs than you’re currently planning for.
• Your Taxes. Don’t assume that once you enter retirement and are no longer working that you’re done paying federal income tax. Unless your entire retirement nest egg is comprised of after-tax contributions and earnings on those contributions (as in a Roth IRA), you’ll be responsible for paying taxes on the amounts you withdraw from your retirement accounts. So the balance of your retirement account doesn’t actually represent the funds you have available – part of that money will eventually go towards taxes.
• Social Security Uncertainty. Finally, it’s possible that by the time you retire the Social Security program will look much different than it does today. One possible scenario is that you will receive less in benefits than you’re currently planning for.

It’s impossible to know exactly what the future holds, of course. But by maximizing your retirement savings you’ll be able to avoid a bad outcome if you’re hit with a costly retirement surprise.