General retirement planning advice says that you’ll need about 80% of your pre-retirement income in retirement, but this may not be the case for everyone. Inflation, taxes, and long-term care costs are easily overlooked – but these expenses could be high. When creating your retirement budget, don’t forget to include these three expenses.
Taxes: How Much Will You Pay in the Future?
It’s easy to forget about taxes after you file, but it’s important to think long-term when it comes to your tax burden. Your tax situation can change significantly in retirement, but that doesn’t necessarily mean you’ll pay significantly less. Many types of income in retirement are taxable, including your Social Security benefits (depending on your income), your retirement account distributions, capital gains, and the sale of property. Also, consider that tax may be at historic lows right now, and our growing national debt and tax-increasing proposals from the Biden administration could change this.
Long Term Care: How Expensive Is It?
The average 65-year-old couple retiring today will need an estimated $295,000 to cover their healthcare costs[1], and that doesn’t include long-term care costs. An estimated 70% of today’s 65-year-olds will need long-term care at some point,[2] and costs can be staggering. The average monthly cost of care in 2022 is $4,000.[3] Medicare and Medicaid will only cover costs in some circumstances, so retirees must have a plan for covering long-term care costs. There are many options outside of long-term care insurance, and the right solution depends on your situation.
Inflation: How Much Will Your Lifestyle Cost in 10 Years?
No one knows when inflation will return to normal levels, and in the meantime, your lifestyle could become more expensive. We’ve already seen the price of gas, food, and other essential goods and services rise in price. Consider how much your retirement lifestyle will cost you, factoring in inflation. For example, after 10 years of 7% inflation, $1 million would be worth about half – $508,350.[4] How much you’ll be left with after inflation depends on many factors, including your investment strategy, the inflation rate, and your retirement lifestyle goals. Make a plan now – not after – inflation takes its toll.
[2] https://www.genworth.com/aging-and-you/finances/cost-of-care/cost-of-care-trends-and-insights.html
[3] https://aging.com/in-home-care-costs-breakdown/
[4] https://www.buyupside.com/calculators/inflationjan08.htm
The commentary on this blog reflects the personal opinions, viewpoints, and analyses of BML Wealth Management’s employees providing such comments and should not be regarded as a description of advisory services provided by West Wealth Group, LLC. The views reflected in the commentary are subject to change at any time without notice. Nothing on this blog constitutes investment advice. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Investing involves risk, including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Past performance is no guarantee of future returns.
Investment advisory services through West Wealth Group, LLC, an SEC Registered Investment Adviser. BML Wealth Management and West Wealth Group, LLC are affiliated entities. Insurance Services are offered through BML Wealth & Insurance Services, California Insurance License #0M15550.
We do not provide tax or legal advice, all individuals are encouraged to seek guidance from qualified professionals regarding their personal situation. Any references to protection benefits or steady and reliable income streams in this guide refer only to fixed insurance products. They do not refer, in any way, to securities or investment advisory products.
