Don't Ignore These Retirement Expenses (Blackrock)

Top 10 Forgotten Retirement Expenses

Are you considering all of your retirement expenses in your planning?

You've no doubt got a sense of how much retirement income your 401(k), IRA, Social Security benefit and other investments will be able to generate for you in retirement. But have you taken a careful and detailed look at your expected monthly outgo in retirement?

Understanding your retirement expenses is an equally important step in successful retirement planning.

As you work your way through this interactive retirement expense worksheet, take the time to carefully consider some of the most overlooked retirement expenses:

1. Health care
   Yes, you are eligible for Medicare beginning at age 65, but Medicare comes with monthly premiums. "If you're transitioning from an employer defraying the cost of health insurance to covering all your costs on your own, you need to understand what that means," advises Chad Terry, BlackRock's Director of Retirement and Investment Education. For 2014, the standard monthly premium for Medicare Part B was $104.50, but high-income households paid as much as $230.80 a month. Prescription drug coverage (Medicare Part D) is an additional cost, and you need to prepare for expenses that Medicare does not cover.
2. Income tax on traditional 401(k) and IRA withdrawals
   Even if you don't need the cash, Uncle Sam requires you to take required minimum distributions (RMD) from traditional individual retirement accounts by April 1 of the year after you turn 70 ½ years old. And such withdrawals generally are taxed as ordinary income. Depending on the size of your RMDs, you might even find yourself bumped into a higher tax bracket.

   Note: Roth IRAs don't have withdrawal requirements, and you may not have to make 401(k) withdrawals if you are still working.
3. Income tax on Social Security benefits
   Yep, there are more potential taxes on retirement income out there. Individuals with income of more than $34,000, and married couples filing joint federal tax returns with more than $44,000 in income generally owe federal income tax on up to 85% of their Social Security benefit.
4. Housing
   Okay, what you spend on housing isn't exactly forgotten, but have you carefully tallied all the various expenses? It can be an eye opener. According to the Survey of Consumer Expenditures, basic housing costs account for more than one-third of spending by Americans over age 65. Utilities eat up another 9% of retirement spending. Downsizing can be one way to reduce your housing expenses—especially if it means being able to pay off a mortgage. About one in four Americans who are at least 65 years old, who own a home, are still making mortgage payments.
5. Adding a vacation spot
   If you buy or rent a vacation property, you are adding a whole new round of housing costs to your retirement expenses.

   Note: You could also encounter different tax rates or treatment for property in another state.
6. Helping elderly parents
   One in five middle-aged Americans provide some financial support for a parent who is at least 65 years old, according to the Pew Research Center. "Helping your family is an important unforeseen expense to think about," Terry says. According to a recentnational survey conducted by caring.com, almost half of the families who provide care spend more than $5,000 a year.
7. Helping adult children
   Forty-eight percent of parents with adult children (at least 18 years old) provided some support to their kids in 2012, according to Pew. That's up from 42% in 2005.
8. Helping grandchildren
   Do you intend to contribute to a 529 college savings plan, or help pay other education costs, such as preschool bills? Those are expenses you should take into account.
9. Insurance premiums
   Don't forget this ongoing expense. Especially if you have long-term care insurance, for which annual premiums can often run more than $2,000.
10. Inflation
    You may be on a fixed income, but there's nothing fixed about many expenses you'll be paying through what can be a very long retirement. In fact, the inflation typically experienced by older Americans is slightly higher than the general inflation rate that generally hovers around 3% or so a year*. (Later life medical expenses are often to blame for that.) What costs $1 today will cost more than $2 in 25 years, assuming an annualized inflation rate of 3%.