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You’ve
got it all planned out. Your retirement savings plans are full, you have
started receiving Social Security benefits, and your Pension is ready to go.
Everything is planned, what could go wrong? Here are five surprises that can
turn your plan on a dime.
1.
Health emergency and Long-term Care. When
a simple procedure could cost thousands, health care costs can put a huge dent
in your plan. Long-term care can cost thousands per month. Have you planned for
this? If your health insurance is not adequate you may need to pull money out
of your retirement plan to pay the bills. While this withdrawal may not be
subject to a penalty, it might be subject to income tax if the funds are from a
pre-tax account.
Tip: Look into creative ways to enhance your
health insurance coverage including supplemental health insurance and
prescription drug cost coverage. Consider long-term care insurance and other
alternative ways to reduce your potential living needs.
2.
Taxability of Social Security benefits. If
you have excess earnings, your Social Security benefits could be reduced. Even
worse, if you are still working, your benefits could be subject to income tax.
Tip: If this impacts you, consider conducting a tax
planning session to better understand your options including the possibility of
delaying the receipt of Social Security benefits.
3.
Your pension plan. Understand if your pension is in good
financial health. Often pensions will offer a lump-sum payout option for you.
Should you take it?
Tip: Review your pension plan’s annual statement.
How solid is it? If there are risks, consider cash out alternatives and
planning for the potential drop in future income.
4.
Minimum Required Distribution (RMD). Forgot
to take your minimum required distribution from your retirement plans this
year? The tax bite could be quite a surprise as the penalty on the amount not
withdrawn is 50%!
Tip: Select a memorable date (like your birthday)
to review your RMD and take action so this tax surprise does not impact you.
5.
Future Tax Rates. The federal government is spending over
$1 trillion more than it brings in each year. Cash starved states are looking
for new tax revenue. Don’t be surprised when future tax rates continue to rise
during your retirement.
Tips:
- Create a retirement plan with higher state and federal tax rates
- Plan for increases in health care costs through Medicare
- Plan for more tax on Social Security benefits
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