Retirement can be a lovely word and conjure up all sorts of happy places and things to do…if you are prepared. No one can argue the benefits of freedom and getting to do things you couldn’t do while you were working or running your own company. The key is to make sure you are set up so you CAN do these things and not be surprised after you have stopped your primary source of income.
Unfortunately, all too often people enter retirement “blind” to the fact there are hidden costs that can greatly affect your enjoyment (and experiences) in retirement. If you are aware of these ahead of time you can be much better prepared to knock them down so you can enter retirement without these burdens around your neck.
Talk about a rude awakening—you’re happily planning your retirement, reviewing your accounts as you start working the numbers, and wham—the fees have taken a bite out of your future. Be aware of these fees, advises US News & World Report in a useful article, “10 Hidden Fees to Be Aware of in Retirement.”
- When you buy an annuity, the sales person receives a commission. There are also underwriting and management expenses. Annuities are generally understood to have higher fees than the typical mutual fund so be aware of these costs and associated benefits before buying an annuity.
- Advisory Fees. In a non-fiduciary managed account, such as a bank, there may be some hidden costs. With these accounts, you typically deal with a broker who is not a registered investment advisor or CFP so it can be difficult to discern their fees. Ask questions and make sure that you understand how much of your money is being invested and how money is being used on fees.
- Inactivity Fees from Brokerage Accounts. This is basically money you have tossed away. Check the fine print on your online brokerage accounts to be sure you are not spending money because the account is not active. You might be paying to keep an inactive account inactive.
- RMD Penalties. Anyone over age 70 ½ is required to take a minimum distribution from their IRA and other retirement accounts. If you take the money by Dec.ember31st, you are fine. However, if you forget to take out your RMD (Required Minimum Distribution) the penalty can be steep. For Example, it can be up as much as 50% of the required withdrawal amount.
- Mutual Fund Expense Ratios. These are fees charged to cover a fund’s annual expenses. If you don’t know what they are, find out what you are spending on an annual basis.
- Home Costs. If your retirement includes aging in place, make plans to ensure that your home remains safe. This can include doing some minor or major renovations, such as changing out a tub for a walk-in shower or adding a downstairs bedroom or repairs. These should be factored in as they can really add up over time.
- Car Costs. There are several costs associated with owning a car. If you have two cars but only use one, you might want to consider becoming a one-car household. Also, don’t forget about insurance and other costs that can go up as you get older.
- Travel in Retirement. Make the most out of your travel budget and be more aware of additional costs in organized trips. If you’re more prepared and do your homework/planning, you’ll likely be able to take more trips.
- This basic economic factor has been historically low in recent years. However, it does not go away and there is no certainty that it will remain low. Make sure you’re prepared if and when it returns with a bang.
Smart financial planning can make your retirement dollars go further. While your financial advisor and accountant can be great resources in helping you in their specific areas of interest, your Estate Planning attorney can see a much broader picture and can act as your “quarterback” in helping you identify and manage many of these retirement costs. Seek their guidance and counsel as you embark on understanding and hopefully eliminating these expenses into your retirement years.