Costs you can't avoid when you retire, no matter how hard you try | MCUTimes

Costs you can’t avoid when you retire, no matter how hard you try

While some costs are easy to cut in on retirement, some simply can not be avoided.

When retiring, caring for yourself and your family should be your top priority, and that comes with expenses. However, these expenses do not have to surprise you. If you know what to expect, you can prepare.

Here are three costs you can’t avoid retiring, no matter how hard you try – and how you make sure you can afford them.

1. Health expenses

Paying for health care in retirement can be expensive, and it can only get more expensive over time. From retiring before Medicare starts at age 65 and paying for your own insurance coverage, to managing the cost of long-term care, health care is a major expense for retirees.

According to Fidelity’s data on health spending, the typical couple retiring in 2021 will need $ 300,000 after tax only to cover health expenses in the event of retirement.

These costs are not something you can get rid of, so it is worth saving for them now. Use of a Health savings account can be a great way to plan ahead for these expenses, as the money you contribute to this account does not expire and can be invested.

2. Taxes

Even with careful planning, you will almost certainly have to pay some taxes upon retirement.

Some of what you owe involves paying tax on money you put into retirement accounts before tax – you pay the taxes on that money when you retire. This includes traditional IRAs and 401 (k) accounts. However, you can reduce the amount you owe in tax by saving in accounts that are financed with money that you have already paid tax on – a Roth IRA is one of these types of accounts.

Outside retirement accounts, you may also owe other taxes. Property taxes vary by state, but are almost safe for homeowners.

If you decide to sell real estate or investment real estate, you need to sell investments in one broker account, or make other profits you could owes capital gains taxes. However, this charge varies based on how long you have had the asset and your tax amount. In general, the longer you have owned the asset and the lower your tax amount, the less you owe in capital gains taxes.

Although taxes are complicated and many factors contribute to what you pay, thinking long-term before investing, buying real estate or contributing to retirement accounts can reduce your tax burden on retirement.

3. Emergencies

From major medical emergencies to a home repair, emergencies will emerge upon retirement, just as they did in your working life.

It is just as important to have an emergency fund for retirement as it was when you worked. An emergency fund is a savings account set aside for emergencies and unexpected expenses to protect your budget and savings. Generally, this means that you have to save between three and six months of expenses in a savings account to cover immediate needs that would not normally fit into your budget.

The last thing you want to do is dip into your retirement savings for something that is a relatively small expense. Having an emergency fund can help prevent this problem.

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