What are the retirement expenses that people plan on, or maybe they don’t. Those hidden expenses can just totally destroy a well-laid-out plan, if you avoid those expenses, don’t know about those expenses or don’t plan on those expenses. Hey, welcome to what we’re going to do today. We’re going to go through those things that can derail your retirement.

Number one is healthcare. Some people say, well, Medicare will take care of everything. It’ll take care of my long-term care. They’re mistaken about a lot of things. Medicare, when you get part A and part B, you still then have to go get a supplement that might cost you a 150, 200, $250 a month. You still go have to go get Medicare advantage if you don’t get the supplement, you might still have to pick up a prescription Part D, there are all kinds of expenses.

And if in the previous two years you’ve made too much money or over a certain amount of money, you may have to pay instead of $171 a month for Part B, you could pay as high as $600 a month for Part B Medicare expenses. So you need to know it’s a hidden expense that people say, well, it’ll take care of that. And the biggest mistake is people say, well, it’ll take care of long-term care. No, it won’t. Medicare was never meant or never fashioned or never purposed to take care of long-term care. Healthcare cost can derail your retirement plan.

Number two, taxes on social security. As I’m making this show, a few weeks ago, I had a class in Cerritos with over 40 people there, and one of the presidential candidates had come out and said that they were going to support no taxes on social security. And there were several people raise their hand, do we really have to pay tax on social security? The answer is a absolutely adamant yes, after a period of time. 25,000 for a single, 32,000 for a married couple, you begin to start paying tax on your social security. Muhammad Ali always said, it’s the punch that he didn’t expect that knocked him out. Taxes are going to come on your social security.

Number three, while we’re on the subject of taxes, let’s talk about your retirement accounts. Unless they’re a Roth retirement account, every single penny that comes out of your retirement accounts, your IRAs, your 401(k)s, your 457s, your 403(b)s, your SEPs, your SIMPLEs, all of those things, everything that comes out of those, unless there are Roth, has to be taxed and it adds to your taxable income and you’re taxed at your regular income tax rate. If you have a large IRA or a large 401(k) that could push you into a higher tax bracket. You say, I don’t really need the money, I’m just going to leave it there. Oh, no, you’re not. When you turn 73 now, you’re going to have to start taking money out of your IRAs and your 401(k)s, and it’s all going to be taxed as regular income.

Number four, inflation. Up until just the last four years, for 40 years, we didn’t have to worry about inflation. It was 1%, 2%, two and a half percent. In the past four years, it’s over 20%, close to 25%. So that means that if you had enough money in retirement and you were on a flat fixed income, if you had enough money in 2019 to last you through the entire year, that money’s going to run out sometime in the first part of October of this year. Because you’ve had the same amount of dollars and they just don’t go as far because of inflation. Through the 29 years I’ve been doing this, I’ve seen so many people that didn’t account for inflation. And when inflation does raise its ugly head like now, it just way lays their retirement plan, because what they find is, oh, it looks like we’re okay, but your credit cards are going higher. Look at the Wall Street Journal recently. Credit card is at an all-time high for debt credit cards, okay? Your savings are at an all-time low because those emergency funds begin to go down. And, recently there was an article in a national publication that said more money is being taken out early with penalties from 401(k)s and IRAs than at any other time in the history of America. Why? Because inflation is going to suck its money out of something, either your regular income. But if that’s flat, it’s got to go onto a credit card, it’s got to come out of savings, or it’s got to come out of your IRAs or 401(k)s.

Number five, something that costs people a lot of money they never think about is home repairs and home maintenance. Well, not me, I’ve got my house paid for. Well, if you’ve had your house and your house is 40 years old, 50 years old, 35 years old, you’re going to have water pipes that break. You’re going to have roofs that need to be replaced. You’re going to want to landscape scape the backyard so that you can live out there because you’re at home all the time now. So there’s going to be home maintenance, home repairs and home upkeep. So it’s okay to do all of that, everybody does all of that, but it’s got to build into a retirement plan, and take the cover off of it and don’t let it be hidden.

The sixth thing that can take your money in a hurry this one, is long-term care. If you go in to a nursing home, if you need home healthcare, it is very, very expensive. Now, nobody sets around and says, well, I’d like to have home healthcare for three years of my life. I’d like to live in a nursing home for three years of my life. But there are many of us who get to the end of our life and we realize we have to have the nursing home or we have to have the home healthcare. Well, you better have a plan for it. You better have either a pocket of money that’s going to help you that you’ve set aside to take care of that. You might want a pocket of money. You might want a policy that actually is a long-term care policy, hard to get, pretty expensive, a lot of people can’t qualify for them. Or you might want to have some other vehicle that serves multiple purposes like a fixed indexed annuity.  Some of the fixed indexed annuities that are being offered out there right now will take care of long-term care in this way. It’s not a long-term care coverage, but if you hit two of the six activities of daily living, it will double the payout on that annuity for five years to help you cover the cost.

Number seven is a sad one, it’s losing a spouse. Everybody always plans on being married all the way up to the time they pass away. And for one spouse, that’s true. But for the surviving spouse, that surviving spouse is going to be left alone. You say, well, if the house is paid for, the car is paid for, and you’re just drawing money out to live off of and they’re going to use about the same amount, here’s the problem. The year after one spouse passes away, the surviving spouse goes into a tax bracket that’s single, not married filing jointly any longer. And so therefore basically, you get to the higher rates twice as fast. For instance, less than 50,000 right now you get to the 22% tax bracket as a single person. At about 100,000 you get to the 22% tax bracket as a married person, taxes can come in to that surviving spouse and really hit you with a punch that you don’t expect.

Number eight would be downsizing. A lot of people say, I don’t need a 3,500 square foot house in Southern California. All the kids are gone. They don’t come home that often. If so, they can stay in a hotel. I don’t need the big house. Let’s downsize. Think about the expense you’ve got. If you’re living in an older house to get it ready to sell, you’ve got that ready to sell expense, you’ve got the realtor expense, you’ve got the moving expense to even across town, there’s moving expense. You’ve got a realtor expense to buy that new place, and the fixer upper expense to fix up the new place.

So downsizing, though it may end up putting a pocket of money into your asset holdings, it also may cost you a pocket of money. Debt you don’t feel like you’re going to have if you don’t think through it, but it could cost you as much as 80 to a hundred thousand dollars to actually go through that process of downsizing.

Number nine is family support. I mean, you’re healthy as a horse, you feel great, that’s super, but you may have a child that needs you to give them almost 24 hour a day care. You may have a spouse that needs 24 hour a day care, and you might be the one that’s chosen to give that to them. What I see more often than not is you may inherit grandchildren. And you say, oh, I love grandchildren, but those grandchildren come back to live with you, and so therefore you’ve got to do the school expense, the little league expense, the dance expense, because you raised your children, but your children aren’t raising their children, so it’s left to you to support the family. Not only is that a big financial cost. And yeah, it’s rewarding, it’s great you get to be with your grandkids, they’re on your heart, at least they get to live in your house. But it can be a very expensive thing for you financially, but it can also be a very draining thing to somebody who’s in their sixties or seventies to have to raise a four-year-old, five-year-old, seven-year-old, twelve-year-old, it’s pretty draining.

Let me wrap this up with number 10, insurance cost. You’re still going to have, some of you are still paying life insurance because maybe you have debt and you don’t have a lot of savings to pass on, you have the insurance on the house, you have the insurance on your car and maybe you had a little ding, and when you’re older, it’s just like as a teenager, you have a little wreck sometimes and your rates go up because you’re a hazard because you’re older, okay? And you’re having your medical insurance through, even though it’s Medicare part A and part B, you’re paying for Part B, and you’re paying for a Medicare supplement or Medicare advantage, insurance, insurance, insurance begins to crowd in and cost you money. And the cost of that insurance because of your age may be higher than it was when you were younger. You’re used to paying insurance at a certain amount. You think this is what the amount it’s always going to be. It may be a lot more when you’re older. Don’t overlook that expense.

So what’s going to get you, hopefully nothing will, because you expect these hidden expenses. Expenses are always still there. Taxes, insurance, all the things that we mentioned today, all 10 of them, I mentioned 10 of them because they’re not all going to hit you, but maybe three of them will or four of them will, and I don’t know which ones are going to hit you. You need to be aware that there are hidden expenses or expenses that you really don’t think might not be as much as they’re going to be, but they could be larger than you anticipate in retirement. That’s why we encourage you to work with somebody who’s worked with other people who’ve gone through retirement, and they can guesstimate in a lot better way how much all of these expenses are going to cost you.

It’s important that you have a written retirement plan that addresses all of these things. If you want to check that out, click the tab and look for “How to Build a Retirement Plan”. You can see another whole episode where we really delve into what’s involved in a retirement plan. So until next time, I tell you this every time. I’m Tom Mosley, and I promise you if you’ll give me 8, 10, 12 minutes, I’ll do my best to increase your financial knowledge.