Are You Really Prepared for the Costs of Retirement?

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For most of us, retirement is a nebulous concept. Retirement might be 20, 30, or even 40 years down the road. Our human minds have a hard time looking ahead so far, and truly grasping the implications.

Even harder for us to imagine is the fact that we may need to ensure that our money lasts an additional 30 to 40 years into the future. It’s not enough to get to retirement; you have to get through the rest of your life as well.

However, for many of us, retirement will arrive with extra costs. It may not be enough to assume that socking away $300 a month is enough to get you through retirement. Here are some of the costs that may derail you during retirement:

Costs of Retirement


Health Care Costs

One of the biggest costs many of us face have to do with health care. And that’s not going to change anytime soon. Fidelity Investments recently released its annual report about costs in retirement, and found that a 65-year-old couple retiring in 2012 could expect to pay $240,000 in health care costs — if the man lives another 17 years and the woman lives another 20. What if you live 10 years beyond that? And that figure doesn’t include long-term care.

Once you start adding in long-term care services, and realize that the EBRI estimates that Medicare will only cover about 51% of your health care costs, things start to get dicey. You can invest in a HSA starting now to help you cover some of your costs down the road tax-free, and you might want to check your insurance options to make sure that you are covered.



You might not realize it, but taxes could come back to haunt you. If you have put money in a tax-deferred retirement account, once you start withdrawing the money, you will have to pay taxes on it.

You can try to avoid it by withdrawing only small amounts, but at some point it will catch up with you when the required minimum distributions start. You can avoid the RMD problem by rolling your account over to a Roth IRA, but you will still have to deal with the tax consequences.

Some choose to just start out with a Roth account (you can invest in a Roth 401(k), too, if it’s available), paying taxes now and allowing the money to grow tax-free.

Also, don’t forget about the taxes that you might have to pay on Social Security benefits. Many people don’t realize that most benefits from Social Security are taxable. The income thresholds are fairly low, too. It’s important to look ahead, and prepare for the taxes that might be coming.



Unfortunately, inflation tends to creep up on us. Inflation results in higher prices, diminishing your buying power. Add inflation to the equation, and some experts think that saving up a $1 million nest egg is no longer enough to see you through retirement.

Don’t discount inflation, since it means that you are likely to spend more than you think — and its effects apply to everything from living expenses to already-growing health care costs.

Takes these costs seriously, and start planning ways to offset your exposure to them. With the right planning, and if you take action starting now, you can plan for a prosperous retirement.

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