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The Top Five Unexpected Costs of Retirement


Make space in your portfolio for these added risks.

3. Higher Taxes, Higher Inflation
Pay it out to Uncle Sam.

Taxes, one of two things you can't escape in life. Unfortunately for those who are planning to retire any time in the future, taxes are only going to get higher. All of those bailouts that President Barack Obama signed during the recession are going to be paid for by taxing the American people. But, that isn't the only way taxes will chip into your retirement unexpectedly. Few people realize that working part-time during your retirement will take a huge bite out of your Social Security payments; Macko says that the government can tax you up to 85% on the benefits if you are working part-time.

Inflation may not be a problem right now, some economists are worried that it will become a serious and sudden problem after the economy recovers. In that case, it's important to keep in mind that the money you saved might not go as far by the time you retire.

4. Health Costs and Dental Care
Expect to pay for a happy, healthy you.

Health care is top of mind now that reform has been passed, but it's important that it stays on your mind well into retirement. Getting older means having a whole heap of new health expenses to worry about, and less income to pay for them. No one is sure exactly how the changes are going to affect a lot of seniors on Medicare. Although some will be helped by the closing of the prescription drug "doughnut hole", others will incur higher premiums. Either way, health care is still going to be very expensive for everyone. It's important that you save for the chance that you will develop a chronic illness and need constant care, or for the chance that you will need to move to a nursing home.

According to a 2004 report from the Congressional Budget Office, 24% of the people who turn 65 this year will need to be in a nursing home for a year or more. One study done by the Center for Retirement Research at Boston College shows that out-of-pocket health-care expenses for a couple at age 65 could range anywhere from $197,000 to $570,000.

Another health-care woe that isn't always considered is dental work. "As you get older, simple fillings don't cut it any more and procedures are expensive," says Frank Boucher, CFP at Boucher Family Planning in Reston, Virginia. Many retirees don't have dental insurance but, even if they do, coverage on the most expensive procedures like root canals and caps is generally limited. Implants, which can run over $4,000, usually aren't covered at all." If you aren't saving, start flossing.

5. Repairs for Your Older Home

It's Tool Time!

Unfortunately, home and car repair are things that we can't necessarily prepare for before they happen. It's best to replace major appliances and deal with any large remodeling jobs before you retire to avoid incurring unexpected costs from these things later on. Don't forget, home repair costs will go up as your home ages. Some people choose to downsize and/or move to a cheaper part of the country to avoid high house-related costs.

If you are a two-car household, consider selling one of your vehicles once you both retire. If you can, try to sell both of your cars and buy a used car -- you will save in car registration and licensing fees this way. Also, try insuring your house and car with the same firm; you could save as much as 15% by combining plans.
No positions in stocks mentioned.

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