What other financial aspects should I consider during retirement?
Originally posted on: iQuanti.com
When we think about retirement, we think about spending more time with loved ones, traveling, and living carefree. The truth is that retirement requires a lot of planning, especially if you want to maintain your current lifestyle.
While we often hear about the need for retirement savings, there are other financial aspects of retirement that you should consider beforehand to make the transition smoother. Below are some key financial factors to consider as you get closer to the stages of retirement.
Social Security Benefits
Social Security is a government program that provides financial benefits to retirees, disabled persons, and the surviving spouses and children of individuals insured under the program.
Social Security benefits are based on your average indexed monthly earnings (AIME), which considers up to 35 years of your earnings history. The PIA (primary insurance amount) is then calculated based on this average and determines how much you’ll receive in benefits. So, the higher your earnings throughout your working years, the higher your PIA will be, and the more you’ll receive in social security benefits.
There’s a lot of debate around the best time to start collecting Social Security benefits. You can start collecting as early as 62, but you’ll receive a lower monthly payment than if you waited until your full retirement age.
If you wait until you reach the age of 70 to start collecting, you’ll receive even more. Experts recommend that you apply for SSI benefits at this age even if you’re still working because you won’t receive any other increase in your monthly payments after the age of 70.
Healthcare Expenses
Even if you’re healthy now, healthcare costs can add up quickly, with the cost of prescription drugs, co-pays, and procedures, so it’s best to prepare.
There are a few options available to help cover healthcare costs during retirement. One option is applying for Medicare, a federal health insurance program for people who are over 65 or have certain disabilities. You can also consider investing in a good health insurance plan to ensure you have ample coverage for any medical emergencies or procedures you may need.
Taxes
Unfortunately, you won’t be exempt from taxes just because you retire. You may still be required to pay taxes on your retirement savings, Social Security benefits, and other sources of income if it exceeds $25,000 a year if you file individually or $32,000 a year if you file jointly.
Review your tax situation with a financial planner or tax expert to better understand how your retirement income would be taxed and what steps you can take to minimize your tax obligations.
Estate Planning
Having a well-structured and legally binding estate plan is vital. Without one, your loved ones may not receive your assets as you intended. A proper estate plan provides financial stability for the future generation of your family by reducing costly taxes and ensuring that your assets are safely passed on. This can involve creating a will or trust, designating beneficiaries, and setting up a power of attorney.
A financial planner or an estate planning attorney can help you ensure that you have everything in place and that your plan is current.
The Bottom Line
Retirement can be a fulfilling and enjoyable experience if you plan ahead and take the necessary steps to secure your future. Social Security benefits, healthcare expenses, tax planning, and estate planning are all crucial factors to consider during retirement. Remember to start planning early and seek advice from a financial advisor if necessary.
Sources:
https://www.cnn.com/2023/03/19/politics/retirement-age-social-security-medicare/index.html