Forward Bank

While looking ahead to a leisurely retirement is natural, it’s prudent to prepare for expenses that catch many retirees by surprise. In a recent survey, nearly one-third of retirees reported they faced at least four unforeseen expenditures during retirement. Some of the most common include:

Inflation

Inflation rates have been on a roller coaster lately, and even subtle increases can add up over time. For example, the $100 you spent in 2013 now requires $130 in 2023. So unless that $100 was invested, it effectively lost 30 percent of its value in just 10 years. There is certainly no guarantee inflation will be low in the future. So investing in assets that can compound through multiple market environments is essential to protect your purchasing power.

Home Expenses

If the value of your home dramatically increases, so will your property taxes. On the flip side, if the value of your house declines dramatically, you may not be able to sell it without a loss. And there are repairs and maintenance to consider. Some financial professionals suggest setting aside 10 percent of your monthly payment, property taxes, and homeowner’s insurance for repairs and maintenance. Paying off your mortgage or downsizing can reduce monthly expenses and allow you to hold on to your home until reduced prices rebound.

Social Security and Other Taxes:

If you’re like most recipients, you’ll pay income tax on your Social Security benefits. Individuals with a total gross income (including benefits) of $25,000 may pay taxes on up to 50 percent of their Social Security benefits. Up to 85 percent of benefits are taxable for individuals with a combined gross income of more than $34,000.

As a reminder, distributions from a 401(k) or traditional IRA are taxed at your ordinary income tax rate. Therefore, consider withdrawing funds from tax-advantaged vehicles first, such as a Roth IRA, to potentially delay your tax liability.

Retirement is something most of us look forward to. Make sure you're on the right track and prevent your plans from being derailed by these unexpected expenses (and others). Contact our office for a complementary review of your financial situation and an evaluation of your goals.