Baby
boomers entering their “second acts” should think about these matters.
Retirement
is undeniably a major life and financial transition. Even so, baby boomers can
run the risk of growing nonchalant about some of the financial challenges that
retirement poses, for not all are immediately obvious. In looking forward to
their “second acts,” boomers may overlook a few matters that a thorough
retirement strategy needs to address.
RMDs. The Internal Revenue
Service directs seniors to withdraw money from qualified retirement accounts
after age 70½. This class of accounts includes traditional IRAs and employer-sponsored
retirement plans. These drawdowns are officially termed Required Minimum
Distributions (RMDs).1
Taxes. Speaking of RMDs, the
income from an RMD is fully taxable and cannot be rolled over into a Roth IRA.
The income is certainly a plus, but it may also send a retiree into a higher
income tax bracket for the year.1
Retirement does not necessarily imply
reduced taxes. While people may earn less in retirement than they once did,
many forms of income are taxable: RMDs; investment income and dividends; most
pensions; even a portion of Social Security income depending on a taxpayer’s
total income and filing status. Of course, once a mortgage is paid off, a
retiree loses the chance to take the significant mortgage interest deduction.2
Health care
costs. Those
who retire in reasonably good health may not be inclined to think about health
care crises, but they could occur sooner rather than later – and they could be costly.
As Forbes notes, five esteemed
economists recently published a white paper called The Lifetime Medical
Spending of Retirees; their
analysis found that between age 70 and death, the average American senior pays
$122,000 for medical care, much of it from personal savings. Five percent of
this demographic contends with out-of-pocket medical bills exceeding $300,000. Medicines? The “donut
hole” in Medicare still exists, and annually, there are retirees who pay
thousands of dollars of their own money for needed drugs.3,4
Eldercare
needs. Those
who live longer or face health complications will probably need some long-term
care. According to a study from the Department of Health and Human Services,
the average American who turned 65 in 2015 could end up paying $138,000 in
total long-term care costs. Long-term care insurance is expensive, though, and can
be difficult to obtain.5
One other end-of-life expense many
retirees overlook: funeral and burial costs. Pre-planning to address this expense
may help surviving spouses and children.
Rising
consumer prices. Since 1968, consumer inflation has averaged around 4% a year. Does
that sound bearable? At a glance, maybe it does. Over time, however, 4%
inflation can really do some damage to purchasing power. In 20 years, continued
4% inflation would make today’s dollar worth $0.46. Retirees would be wise to
invest in a way that gives them the potential to keep up with increasing
consumer costs.4
As part of
your preparation for retirement, give these matters some thought. Enjoy the here and now,
but recognize the potential for these factors to impact your financial future.
Taylor McClish may be reached at (503) 239-3060 or Taylor.McClish@cunamutual.com
This material was prepared by MarketingPro, Inc., and does not
necessarily represent the views of the presenting party, nor their affiliates. This
information has been derived from sources believed to be accurate. Please note
- investing involves risk, and past performance is no guarantee of future
results. The publisher is not engaged in rendering legal, accounting or other
professional services. If assistance is needed, the reader is advised to engage
the services of a competent professional. This information should not be
construed as investment, tax or legal advice and may not be relied on for the
purpose of avoiding any Federal tax penalty. This is neither a solicitation nor
recommendation to purchase or sell any investment or insurance product or
service, and should not be relied upon as such. All indices are unmanaged and
are not illustrative of any particular investment.
Securities sold, advisory services offered through CUNA Brokerage Services, Inc. (CBSI), member FINRA/SIPC, a registered broker/dealer and investment advisor. CBSI is under contract with the financial institution to make securities available to members. Not NCUA/NCUSIF/FDIC insured, May Lose Value, No Financial Institution Guarantee. Not a deposit of any financial institution. CUNA Brokerage Services, Inc., is a registered broker/dealer in all fifty states of the United States of America.
Citations.
1 - thebalance.com/required-minimum-distributions-2388780
[6/3/18]
2 -
kiplinger.com/slideshow/taxes/T064-S003-how-10-types-of-retirement-income-get-taxed/index.html
[3/27/18]
3 -
forbes.com/sites/nextavenue/2018/06/28/the-truth-about-health-care-costs-in-retirement/
[6/28/18]
4 - mdmag.com/physicians-money-digest/practice-management/four-big-retirement-threats-and-how-to-protect-yourself
[8/2/18]
5 -
money.usnews.com/money/personal-finance/saving-and-budgeting/articles/2018-04-13/6-ways-to-pay-for-long-term-care-if-you-cant-afford-insurance
[4/13/18]
09062018-SR-2603