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You’ve got it all planned out. Your retirement savings
accounts are full, you have started receiving Social Security benefits and
your pension is ready to go. Everything is planned. What could go wrong?
Here are five surprises that can turn your plan on a dime.
1. Health emergencies and long-term care. When a simple
procedure could cost thousands, health care costs can put a huge dent in
your plan. Long-term care can also cost thousands per month. Have you
planned for this? If your health insurance is not adequate, you may need to
pull money out of your retirement accounts to pay the bills. While this
withdrawal may not be subject to a penalty, it might be subject to income
tax if the funds are from a pre-tax account.
Tip: Look into creative ways to enhance your health insurance
coverage including supplemental health insurance and prescription drug cost
coverage. Consider long-term care insurance and other alternative ways to
reduce your potential living needs.
2. Taxability of Social Security benefits. If you have excess
earnings, your Social Security benefits could be reduced. Even worse, if
you are still working, your benefits could be subject to income tax.
Tip: If this impacts you, consider conducting a tax planning
session to better understand your options including the possibility of
delaying the receipt of Social Security benefits.
3. Your pension plan. Understand if your pension is in good
financial health. Pensions will often offer a lump-sum payout option for
you. Should you take it?
Tip: Review your pension plan’s annual statement. How solid is
it? If there are risks, consider cash out alternatives and planning for the
potential drop in future income.
4. Minimum required distributions. Forgot to take your
minimum required distribution from your retirement plans this year? The tax
bite, however, could be quite a surprise in future years so you will need
to actively manage this aspect of your retirement or a bite could be taken
out of your retirement plans.
Tip: Select a memorable date (like your birthday) to review your
distribution and take action so this tax surprise does not impact you.
5. Future tax rates. The federal government is spending over
$1 trillion more than it brings in each year. Cash-starved states are also
looking for new tax revenue. So don’t be surprised when future tax rates
continue to rise during your retirement.
Tips:
- Create a retirement plan with higher state and federal
tax rates
- Plan for increases in health care costs through
Medicare
- Plan for more taxes on Social Security benefits
- Plan for higher capital gain and dividend taxes (now
20% versus 15%)
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