By Sarah Stewart Legal Group
Retirement planning is a difficult and confusing task. But, it is necessary. When planning there are 4 considerations you should address that could affect your retirement account’s bottom line and your lifestyle when you retire.
The only things certain in life are death and taxes. No matter your age, you will be responsible for State and Federal taxes, including income taxes. Make sure to account for future taxes in your retirement plan, or your future budget will be thrown off.
For instance, if you stash all of your money into a Traditional 401(k) or IRA, your withdrawals will be subject to income tax. If those monthly withdrawals are high enough, your Social Security income may be taxed as well. The solution is to plan for taxes while drafting your plan.
One tool to consider is a Roth IRA. Roth deposits are made with after-tax dollars, so future withdrawals are not subject to income tax or required minimum distributions. So, Roth accounts can save you a large tax bill in the long run.
On average, inflation causes the U.S. Dollar to lose 3% of its value per year. So, you must account for the fact that your retirement account will lose at least 3% of its value each year. To beat inflation, be sure to pick a portfolio that has a historically high enough return to overcome the value lost.
(3) Long-term Care
People are living longer and longer each decade, making the costs of long-term care a likely item you’ll need in your retirement budget. In our current market, long-term care can cost anywhere from $4,000 – $6,000 per month. That’s quite the hefty price tag. Medicare usually won’t provide much, if any, assistance in long-term care and State and Federal funding in this area is constantly in flux and one of the first budget lines to go when States are tightening their wallets.
Consider getting long-term care insurance to help with long-term care expenses. People generally can get low premiums on this type of insurance if they purchase it early enough, usually in their 50s. It is easier to budget for the insurance premiums associated with long-term care insurance than it is to predict how much long-term care facilities will charge when you need them. But, always use an abundance of caution in planning for your long-term care expenses in retirement planning.
(4) Estate Planning
Anyone who has been through a probate can tell you what a burden the procedure can be for the family. The burden only increases if you have not completed some form of estate planning. Probates are expensive, time-consuming, and emotionally draining for the loved ones you leave behind.
Also, if you do not take the time to write out a Will or other plan, the State will determine who gets your assets and how, based on the laws they have put in place for these matters. You will need to consider your goals and wishes for your family and look at the pros and cons of having a Will, Trust, Durable Power of Attorney, Advance Directive, and other documents in your arsenal.