Retirement planning is a fairly complex and multifaceted process that goes beyond just planning to save money. According to Scott Tominaga, while the majority of individuals consider the basics such as how much they would be saving or where to invest money to get the highest return, there are many important factors that they often miss to take into consideration. Following are four generally overlooked aspects that can have a major impact on an individual’s retirement fund.
1. Healthcare Costs
Healthcare expenses are among the most vital yet often underrated areas of expenses in retirement plans. While many individuals anticipate the magnitude of medical issues and expenses involved in aging, not considering them can impact their overall retirement saving plan. Make sure to go for Medicare which covers a lot, but not everything. So, individuals are still required to make a budget for paying insurance premiums, co-pays, and deductibles, for potential long-term care for issues – as Medicare often does not take care of, says Scott Tominaga.
Tip: Ensure to plan for healthcare costs by considering potential out-of-pocket expenses. Individuals should go for a Health Savings Account (HSA) as early as possible while they are involved in the profession to maximize the outcome. Thankfully, the savings plan is also tax-free as it is spent for medical expenses purposes, if required also, seek plans on long-term care insurance to cover possible future needs.
2. Inflation
Inflation can have a major impact on one’s purchasing power by eroding the outcome of savings over time. As per Scott Tominaga, however, many people simply overlook this important factor while mainly looking at factors on how much is required to save and where to save, Noteworthy inflation eventually affects their savings and thus can decrease one’s purchasing power unbelievably. So, is there any solution?
Tip: To counter inflation, make sure to put money in assets such as real estate and stocks as they are inflation-hedged. Contextually although stocks might be volatile in the short term mostly in the long term they are hedged against inflation. Do not forget to include investment strategies that are inflation-protected in retirement plans.
4. Tax Implications
Taxes can have a significant impact on your retirement savings and income. Different types of retirement accounts (like traditional IRAs, Roth IRAs, and 401(k)s) have different tax implications, both now and in retirement. Many people don’t fully understand how their withdrawals will be taxed or how to optimize their tax situation in retirement.
Tip: Develop a tax-efficient withdrawal strategy by understanding the tax implications of different accounts. For instance, Roth IRA withdrawals are typically tax-free, while traditional IRA withdrawals are taxable. It may be beneficial to consult with a tax advisor to plan your withdrawals strategically.
3. Longevity Risk
With increased longevity, individuals spend more years after retirement, straining retirement savings. Typically as people plan for a normal retirement age, however, they don’t consider the likelihood of living beyond their expectations. Outliving can be a notable concern, particularly since life expectancies are increasing.
Tip: make sure to work with an expert financial advisor like Scott Tominaga who will help to model a variety of retirement scenarios and accordingly plan for different longevity outcomes. It could be prudent to go for annuities or other investments that generate lifetime income.
To conclude, consulting with financial professionals and regularly reviewing your plan can help ensure that you’re well-prepared for a comfortable and secure retirement.
