New Retirees Face Big Surprises

new retirees

New Retirees Find These Financial Surprises.

When you’ve worked hard and planned well and look forward to a predictable financial future in your retirement, as new retirees these surprises are not welcome

Three areas that often bring unwelcome surprises for new retirees are medicare, your mortgage, and taxes.

So take a look at these three areas and study up to be prepared as you enter retirement and let the only surprises you face be once a year on your birthday!new retirees

1. Medicare is a godsend, but it doesn’t cover some of your health bills in retirement. A full 87% of people over 65 have a favorable opinion of Medicare, according to a 2014 Economist/YouGov poll and the experts I interviewed do, too. Even so, they note, Medicare doesn’t pay for everything and those extra bills can add up fast.

Stan Hinden, a former retirement columnist for the Washington Post and author of How to Retire Happy, says he was unhappily surprised by his out-of-pocket cost of dental work, which Medicare covers only in rare instances. Ditto for routine hearing exams and hearing aids, which patients must also pay for on their own.

“Being stuck with those bills comes as a surprise to those of us who were used to having our employers’ insurance cover them,” he says.

2. A paid-off mortgage can pay off personally for non-financial reasons. Whether it’s best to retire your mortgage before you retire can be argued both ways from a financial standpoint. Some advisers say that if you have a low mortgage rate, you’ll come out ahead investing any spare cash elsewhere. Others believe wiping that big debt off your personal balance sheet is just prudent planning when your cash flow may slow to a trickle. Jane Rose, Vice President Emerita at RTD Financial Advisers in Philadelphia, Pa., said ridding herself of a mortgage made sense for emotional reasons as much as economic ones. “What I didn’t realize was how happy and relieved it would make me feel,” she notes.

3. Taxes can get more complicated in retirement. For one thing, after age 70 ½ you must take annual minimum distributions from your traditional (non-Roth) IRAs and pay income tax on them. A portion of your Social Security benefits could also be taxable if your total income exceeds certain limits.

“I was surprised at first by the amount of taxes I owed,” Hinden says. “I didn’t have anything set aside to pay them and suddenly found myself looking around for money.” Hinden ended up paying estimated taxes each quarter to cover the shortfall and to avoid underpayment penalties.
– via Forbes

Life Can Bring Financial Surprises In Retirement

In addition to the surprises we discussed above brought about by new retirees needing more information and perspective, life can bring unexpected financial surprises in retirement.

Here are just two of the possible situations that you may want to think about before they happen so you will be prepared to respond in a way consistent with your plans.

Surprise: The unused vacation dream home.

Planning to spend weekends and summers near the beach or the mountains, the retiree also envisions the vacation home as the ideal location to host adult children and grandchildren for holidays and other big events. Unfortunately, this plan doesn’t always pan out.

Several years ago, one of my clients purchased a vacation home in the mountains of Tennessee for this very reason. But after his adult child moved north as part of a job promotion, the retirees ended up traveling there to see their grandchildren and rarely used the vacation home.

In addition, the Tennessee property didn’t appreciate much over time, so the main reasons for buying the home were nullified. The retiree and his spouse sold the home, but the proceeds were barely enough to cover the mortgage, meaning they had little to reinvest.

Surprise: An adult child falls on hard times.

The cause of the child’s need for a cash infusion will likely be a job loss, an unexpected long-term illness, poor investment or other bad financial decision.

Unfortunately, they often look to their newly retired parents to provide a safety net.

Parents always want to help their children out of trouble. But in this case, it helps to know how much money you can afford to give before it wreaks havoc on your retirement plans.

Before making any decisions, determine how long you can provide any financial assistance and make it clear to the child up front that your financial aid can only last for a certain period.
– via CNBC

Have you thought through unexpected possibilities that you may face in retirement?

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