You’ve worked tirelessly for years, dreaming of a carefree retirement. But what if a few missteps could jeopardize those plans?
Myra Alport, AFC, Paraplanner, and Founder of fempoweredmoney.com shared the frequent errors that can turn retirement dreams into nightmares and how you can avoid them.
Social Security Taxation
A common myth is that Social Security benefits are not subject to taxation, which is entirely incorrect. Contrary to what many retirees believe, Social Security is taxable to over 50% of those receiving benefits. The newly retired may be in for a tax surprise the first year or two if they elect not to have federal taxes withheld from their monthly payments.
Social Security taxation depends on many factors such as filing and marital status, income from self-employment, wages, taxable interest, IRA withdrawals, and dividends. Check the Social Security website to learn how much of your benefit will be taxed and speak to your tax professional for guidance.
Debt
Debt and retirement don’t go together very well. There’s good debt like a mortgage and bad debt like credit cards and personal loans. Carrying high credit card balances into retirement may upset your plans to do all kinds of fun things now that you have more time to enjoy them.
If you have to dip into retirement accounts to pay them off, the withdrawal will be taxed as ordinary income. Also, in a down stock market large withdrawals will have a big impact on how long your savings will last. Make a plan to pay off those debts well in advance of retirement.
Longevity
Most retirees underestimate how long they will live in retirement. If only our birth certificates had an expiration date! Americans today are living longer than ever before. The average life expectancy in the US is 79.25 years, with women living 3-5 years longer than men.
That means your money has to stretch across several decades of retirement. Between inflation and the high cost of healthcare, your “go-go” years may be less than what you had hoped for. A financial advisor can run scenarios that will help you understand the big picture.
