Medicare Isn’t Free?!? And 5 Other Retirement Surprises
Retirement planning can be tricky. Once some of your basic financial questions are answered, the small details of your retirement can be differentiators in your retirement plan. Unfortunately, it’s some of these often-overlooked elements that can come as a surprise when it’s time to put your plan into action.
For example, did you consider the cost of Medicare? What about your specific cost-of-living? Additionally, your key income sources in retirement, like Social Security, can blindside you.
To help you better prepare for retirement, the Linscomb & Williams team wants to clear-up six misconceptions that often come as a surprise in retirement.
Medicare Isn’t Free
Medicare provides healthcare coverage to 55 million Americans, but many retirees are surprised to learn that the federally funded service isn’t free. Medicare is broken down into parts that involve deductibles and monthly premiums.
Medicare Parts A, B and D cover hospital insurance, medical insurance and prescription drug coverage, respectively. Each of these components can have different deductibles and premium costs. Specifically, Medicare Part B and D premiums can vary based on your income.
The healthcare coverage provided by Medicare can be a great benefit, but it’s important to plan for its costs in your retirement plan. For more information on the costs of certain Medicare services, read our recent blog post: Healthcare Costs and Complexity: How Financial Firms (Houston) Can Help. Having clarity on your healthcare expenses can yield you a tremendous peace of mind in retirement.
Social Security Benefits Don’t Need to Be Taken Immediately
You can begin to take Social Security benefits as early as age 62 – but you don’t have to. There may be viable reasons to delay receiving your benefits.
Financially speaking, the longer you wait to start collecting your benefits, the more you’ll receive on a monthly basis. Social Security payouts actually increase every year, maxing out at age 70. Electing to receive Social Security at age 62 versus age 67 can result in a 30 percent decrease of the full amount you’re eligible for. The difference between starting at 62 versus waiting until 70 can be as much as 50 percent in your monthly payment.
Conversely, Waiting to Take Social Security Isn’t Always Best
On the flipside, there may be situations where delaying your Social Security benefit isn’t ideal. While waiting will increase the amount of your benefits, there may be circumstances where it doesn’t pay to wait. For starters, if you have longevity concerns, waiting to take Social Security may result in you never receiving benefits, or receiving them for a short period of time, too short to make up the cost of waiting.
Also, since Social Security is typically only one of your retirement income streams (think pensions, retirement accounts and personal savings), your overall retirement plan may be sufficient without the added money from waiting.
Discuss your situation with a financial advisor to make sure you understand your options and how each decision will affect your overall plan.
An Online Calculator is Not a Financial Advisor
As much as financial calculators can be helpful, they only provide basic insights for your finances. For example, most investment calculators assume a mostly fixed rate of investment growth, or monthly spending amount.
While helpful on a basic level, your life before and during retirement can vary greatly. Your financial needs can differ, your cost-of-living can be higher or lower than the national average, and your family makeup and goals can change. A financial advisor can help you account for all of the intricacies of life, and run different scenarios that can occur if your spending, cost-of-living, or rate of return changes.
For more specifics on a retirement based in Texas, Alabama or Georgia, check out our new guide: Retiring in the South.
Your Expenses May Not Go Down in Retirement
Predicting your future spending can be a tricky exercise.
A common belief is that your expenses will go down in retirement, but that’s not always the case. According to CNN, 46 percent of seniors spend more during their first two years of retirement in living costs, and 33 percent maintain higher spending for the first six years of retirement (more time on your hands and all that ...). With this in mind, your retirement plan should be specific enough to be useful, but flexible enough to account for the unexpected.
In our experience at Linscomb & Williams, the average retiree’s biggest expenses are typically housing (if their mortgage is not paid off) and healthcare, but you’ll want to make sure you incorporate how inflation, taxes and your cost-of-living (especially if you relocate in retirement) will affect your financial plan. Some critical retirement income sources are not taxed in certain states, and can make a big difference in your retirement experience.
All Financial Planners are Not the Same
Though financial planning firms in Houston – and even nationwide – may use similar tools when constructing a financial plan, their business practices can be very different. Read our recent blog post: What If Your Financial Advisor Uses the F-Word?
When searching for a financial planner to work with, make sure he or she has experience with your retirement needs, goals and personality. (Everyone’s retirement personality is different! For help determining yours, check out our new guide: Finding Your Retirement Personality.)
How Linscomb & Williams Can Help You Avoid Retirement Surprises
No one can predict the future; however, the negative effect of financial surprises can be minimized through proper planning. A financial advisor can be the key. Establishing a long-term relationship with a financial advisor you trust can help you organize the tapestry of your financial life and create a specific, long-term financial plan that meets your needs within the context of the current financial climate.
By helping you plan for the unexpected during your retirement – and putting that plan into action on your behalf – your financial advisor can be your lynchpin for retirement and wealth building success.