5 Unforeseen Expenses That Can Ruin Your Retirement
I’ve long since thrown in the towel on retiring by 35. That was my goal as a sophomore in high school and when I look back on it, I can’t help but snicker at how naive I had been. Not because retiring by 35 is unreasonable. If anything, I believe it is more possible now than I’d originally believed. It was my strategy and ignorance of money that hindered my chances of retiring early. If I could do it all over again, I would have done things much differently.
My Brilliant Plan Out of High School
Computers and internet technology were in high demand back in my high school days. There was such a demand, that skills often trumped a college degree. I was a young computer entrepreneur at 16 and although I didn’t have a lot of customers, I’d had some successes. I figured that being a young entrepreneur put me ahead of the rest of the world and my big plan was to earn six-figures straight out of college.
What average college student starts at six-figures straight from school and doesn’t work in a major metro area where the cost of living eats your entire paycheck? What company cares that you ran a business at 16? I’d completely overestimated my clout as an entrepreneur and as a result, I missed some very big opportunities that would have made retiring early a possibility.
Open a Roth IRA as Young as Possible
I can’t blame myself too much for not investing younger. The internet was a new thing when I first started working as a teen. Online brokers and trading didn’t exist yet. Roth IRA’s would be created a few years after I started working. Still, I wish I could have opened a Roth IRA when I turned 16.
Successful retirement savings takes two key ingredients: time and money. You can substitute these ingredients for each other. If you can afford more time, you’ll need less money to save. By opening a Roth IRA at the age of 16, I would have started saving for retirement 5 years earlier. Since I didn’t start earning enough money to pay income taxes until I graduated college, my retirement savings in the first 5 years of work, would have been completely tax free.
Started College with a Plan
It’s not easy planning out your whole life by the age of 18. However, I should have started college with a tentative plan. Instead, I began my classes with a list of ultimatums. I was talented at math, but sick of math classes, so I decided to find majors that avoided the subject. I didn’t realize that many of the best paying jobs straight out of college involved taking lots of math and science classes.
I also switched majors several times. It delayed my graduation. While it didn’t cost me much in tuition, it did delay a career. It would have been nice to start earning the bigger paychecks at a younger age.
The best way to retire at a young age is to avoid debt, not run to it with arms wide open. Like many of my peers, my first credit card arrived at age 18. It ended my use of the word “no” whenever I was invited to social activities.
I never passed up an opportunity for a night out on the town, grabbing a bite to eat for lunch or heading out to the movie theaters. However, my credit card was not a free pass. Over my college years, I built up a lot of debt that took several years to pay off. Instead of earning lots of interest at a young age, I was spending money paying off the interest that I owed.
Retirement is the culmination of everything we worked hard for throughout the first two-thirds of our lives. It is the time when we can truly start to enjoy the fruits of our labor.
Well, ideally, it should be. But what if, before you even start to enjoy your rest and freedom, you discover certain financial obligations that you never even considered before. You find out too late that there are hidden expenses that you still need to pay for regularly. That will surely burst your bubbles fast on your last day on the grind.
With retirement, there are a lot of unforeseen expenses that some people fail to include in their plans or choose to ignore.
1. High Cost of Health Care
Growing old does not necessarily mean a failing health. But at 60 plus of age, even healthy people start to notice that they are not as strong and vibrant as before. They are more prone to sickness. That is why as early as possible, you have to consider that health care may be one of the biggest, if not the biggest, expenses you have to face upon retirement. A big chunk of your retirement money can go to health care costs. The worst part is that medical cost gets higher and higher each year.
You have to consider this fact that at the time of retirement, the cost of medicines and health care can be staggering. The cost of health care also varies with location. So, if you plan to relocate, there is a possibility that the medical cost is different there from where you are now. If you have the option to choose, choose a place where health care cost is low.
2. Family expenses
The size of the family usually gets bigger as a person gets older. It is natural for retiring folks to want to help out in the financial obligations of other family members especially their children and grandchildren. If this is applicable to you then you have to consider this as additional expense on your part.
Some people near the retiring age sometimes choose to buy a new house thinking that they will be spending a lot of time at home. If you want to purchase a new home before you retire then you have to include mortgage payments in your retirement planning as well. But whether you buy a new home or keep your current one, you still need to take into account common home expenses like maintenance, renovations and repairs.
4. Taxes and other fees
Aside from the usual tax on pension checks, there is a hidden tax in Social Security benefits. This tax is collected from individuals whose taxable income (including income from other retirement benefits) is high enough to reach a certain bracket. You might want to check if you will fall into this category. Other fees and taxes include taxes for maintaining former investments and properties. And also, if you are thinking of retiring then penalties can be imposed for early withdrawal from certain retirement savings accounts.
5. Effects of inflation
When planning for retirement, you have to include the effects of inflation. Keep in mind that the value of your money now will not be the same in the coming years. The purchasing power of your dollar may become weaker. The estimated annual inflation rate is 3%. Cost of living is expected to rise by that much each year. The price of your everyday needs like food, transportation and utilities will be higher at the time of retirement as compared to the present.
FORESEE THE UNFORESEEN
It is easy to take into account how much retirement benefits you are going to get and yet fail to see how much you are going to spend.
Do not make this mistake. The best way to manage your expenses upon retirement is to be ready. So way before you retire, you need to consider all the aspects, including expenses. With ample planning, you can enjoy your retirement without worries or burdens.