Are You Really Prepared for the Costs of Retirement?

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RetirementFor most of us, retirement is a nebulous concept. Retirement might be 20, 30, or even 40 years down the road. Our human minds have a hard time looking ahead so far, and truly grasping the implications. Even harder for us to imagine is the fact that we may need to ensure that our money lasts an additional 30 to 40 years into the future. It’s not enough to get to retirement; you have to get through the rest of your life as well.

However, for many of us, retirement will arrive with extra costs. It may not be enough to assume that socking away $300 a month is enough to get you through retirement. Here are some of the costs that may derail you during retirement:

Health Care Costs

One of the biggest costs many of us face have to do with health care. And that’s not going to change anytime soon. Fidelity Investments recently released its annual report about costs in retirement, and found that a 65-year-old couple retiring in 2012 could expect to pay $240,000 in health care costs — if the man lives another 17 years and the woman lives another 20. What if you live 10 years beyond that? And that figure doesn’t include long-term care.

Once you start adding in long-term care services, and realize that the EBRI estimates that Medicare will only cover about 51% of your health care costs, things start to get dicey. You can invest in a HSA starting now to help you cover some of your costs down the road tax-free, and you might want to check your insurance options to make sure that you are covered.


You might not realize it, but taxes could come back to haunt you. If you have put money in a tax-deferred retirement account, once you start withdrawing the money, you will have to pay taxes on it. You can try to avoid it by withdrawing only small amounts, but at some point it will catch up with you when the required minimum distributions start. You can avoid the RMD problem by rolling your account over to a Roth IRA, but you will still have to deal with the tax consequences.

Some choose to just start out with a Roth account (you can invest in a Roth 401(k), too, if it’s available), paying taxes now and allowing the money to grow tax-free.

Also, don’t forget about the taxes that you might have to pay on Social Security benefits. Many people don’t realize that most benefits from Social Security are taxable. The income thresholds are fairly low, too. It’s important to look ahead, and prepare for the taxes that might be coming.


Unfortunately, inflation tends to creep up on us. Inflation results in higher prices, diminishing your buying power. Add inflation to the equation, and some experts think that saving up a $1 million nest egg is no longer enough to see you through retirement. Don’t discount inflation, since it means that you are likely to spend more than you think — and its effects apply to everything from living expenses to already-growing health care costs.

Takes these costs seriously, and start planning ways to offset your exposure to them. With the right planning, and if you take action starting now, you can plan for a prosperous retirement.

(Photo: Tax Credits)

{ 13 comments, please add your thoughts now! }

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13 Responses to “Are You Really Prepared for the Costs of Retirement?”

  1. admiral58 says:

    Great article, thank you

  2. Matt says:

    The one thing I learned from my parents is technology evolves to the point that you don’t know what it will cost in the future and it plain did not exist as a need. HDTV was unheard of 20 years ago when my parents retired. Cell phones were expensive bricks. They now have HDTV and an emergency phone but that was an expense they never thought of.

  3. I’m definitely counting on inflation. As far as taxes, I’m putting a lot of money in Roth vehicles right now so hopefully that lightens the blow a bit. The medical expenses could be astronomical though if they keep increasing at the current rates.

    • Sadie says:

      Being retired, ROTH’s are not an option. Best solution for me is US Savings Bonds Series “I” to be prepared for inflation that is out there; just not acknowledged by the press.

  4. I have no idea how I or anyone is going to afford retirement in 40 years. It just seems impossible.

    • C. Dowling says:

      Agree. I don’t plan on it. Maybe part time employment or a career switch, but, short of a lottery jackpot, it looks unattainable for me.

  5. Shirley says:

    We are retired and live quite comfortably on Social Security and an IRA disbursement. We don’t travel by choice (there doesn’t seem to be enough time anyway) and we live reasonably frugal from habit, but we enjoy many technology related items and activities that were certainly not planned for. Matt is right on about that! 🙂

    The one ‘extra’ thing that I feel brought us to this point was to be totally debt-free before we retired. I cannot stress enough just how important that was in our planning.

  6. bloodbath says:

    I’ve been in retirement the last 9 years and like most people I was not COMPLETELY prepared but I was MORE than somewhat prepared.
    A combination of actions beginning in my mid 30’s has helped me live the life I planed in retired:
    I started 401k savings at its inception and saved the yearly maximum allowed. In addition, I did rainy days and personal savings, real estate investments, cash purchases and frugal living.
    I learned how to save by reading articles like yours, thanks for your tips.

  7. Guest1 says:

    I recently retired and decided to collect my 401K and pension as I simply do not want to acquire debt for the purposes of living while retired.
    While I plan to move into a new career, I will segue into new investment options at that point while working with a CFP.

    While I know this is not the conservative, traditional rule according to most, I rather live out my aspirations and dreams and be happy, not stressed. I’d rather move toward purposeful living than focus on investment strageties for the remainder of my life. God is able!

  8. 3 years ago we had a wake up call – we could not retire (we are self employed) unless I took on a full time job at age 58, and he had a part time job. This sounded feasible enough until I really thought about not having control over our time, wages, and security.

    It is never too late to put elements and plans in place to retire, no matter what your age or circumstances. Just start with baby steps, a dollar here, a dollar there.

    Keep learning and applying what you learn. I visit on a regular basis, as well as other excellent websites and subscribe to newsletters (free is better, imo).

    Real estate is the ultimate goal for cash flow since Robert Kiyosaki’s lessons make the most sense for me. Taking “risks” that others might not take actually makes more sense now, once we got over our initial fear of investing using our home’s equity and our IRA monies (all rolled over into Roth IRAs) for real estate.

    Now, we are just a couple of years away from retiring without having to find a job at the ripe age of 62.

    Plan on retiring the way you want but be willing to give up doodads and bad liabilities for assets bought with good liabilities.

    Mahalo for the article Miranda!

  9. xbalance says:

    I am not retired. I like to view myself as the little piggie that is building his retirement home with bricks. I am married with 2 teenagers, I am 50, we own our house in Seattle, we have saved for 2 college educations (don’t know if it will be enough yet or not) and I think our retirement and non retirement savings is somewhere just over $1M. We did this without being important high paid people. We did this by being frugal. Our Fidelity rep tells us we are doing very well. But for me, it really is the unknown economic outlook (employment), my nest egg can shrink with the markets, the rising costs of health care, expected tax increases, etc. that keep me from knowing when I will be able to retire or when I have saved enough. But just as worrisome, is all of the little piggies in our country that have built their retirement homes with straw, wood or worse. What is going to happen to our country, me and my family included, when those millions of people are not able to work anymore and simply cannot afford to provide themselves with the bare essentials. Somehow I don’t believe that their economic problems will not be all of our economic and social problems.

    • ec says:

      That is exactly what has me worried. Not that I’m not saving enough, but that others aren’t and we will have to bail them out with our savings.

  10. John says:

    Props to Matt. Everyone’s got a laptop, smartphone, HDTV these days, just that dang food and gas keeps getting more expensive!

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