Avoid the Most Common Retirement Mistakes
The Internal Revenue Service directs seniors to withdraw money from qualified retirement accounts after age 72. This class of accounts includes traditional IRAs and employer-sponsored retirement plans. These drawdowns are officially termed Required Minimum Distributions (RMDs).1 It is often easy to overlook an RMD in a long-forgotten retirement account, and the penalty for missing an RMD can be up to 50%. Consider consolidating your various retirement accounts into one to make it easier to manage your RMDs.
Speaking of RMDs, the income from an RMD is fully taxable and cannot be rolled over into a Roth IRA. The income is certainly a plus, but it may also send a retiree into a higher income tax bracket for the year.1 Retirement does not necessarily imply reduced taxes. While people may earn less in retirement than they once did, many forms of income are taxable: RMDs; investment income and dividends; most pensions; even a portion of Social Security income depending on a taxpayer’s total income and filing status. Of course, once a mortgage is paid off, a retiree loses the chance to take the significant mortgage interest deduction.2
3. Healthcare Costs
Those who retire in reasonably good health may not be inclined to think about the possibility of experiencing a healthcare crisis, but these things are unpredictable and could occur sooner rather than later – and they could be costly. A report by HealthView Services found that even with additional insurance coverages such as Medicare Part D, Medigap, and dental insurance, a healthy 65-year-old couple can expect to pay almost $208,000 on average out-of-pocket over their lifetime for their healthcare expenses.3 It’s important to note that this number could be even higher with the costs of healthcare rising in general.
4. Long-Term and End-of-Life Care
Those who live longer, or face certain health complications, will probably need some form of long-term care in the future. One month’s stay in a private room in a nursing home costs an average of $9,000 nationally, so it’s important to consider these costs when preparing for retirement. Long-term care insurance is cheaper, and generally easier to obtain, the younger you begin the coverage.4 One other end-of-life expense many retirees overlook: funeral and burial costs. Pre-arranging your funeral and even pre-paying for your funeral expenses can lower costs and ease the burden on your surviving family members.