The Worst Retirement Roadblocks: How to Avoid Them

A sound retirement can get derailed any number of ways. You can run out of money, be hit by unforeseen expenses or just fail to plan for emergencies. Here are the most common roadblocks and how to avoid them:

* Failure to Anticipate Healthcare Expenses. For those retiring prior to 65, this is more of a problem since they won’t qualify for Medicare.  But even if you apply for Medicare, there are still significant out-of-pocket expenses.

Fortunately, early retirees have access to employer-sponsored plans or the state and federal insurance marketplaces under the Affordable Care Act, which has resulted in covering more than 8 million Americans. See what kinds of policies you qualify for and how much policies will cost.

Even if you wait to retire at 65, keep in mind that Medicare doesn’t cover everything, so you should also price Medicare Supplement Insurance, also known as “Medigap.”  Premiums on these policies vary, depending upon the amount of coverage desired.

* Failure to Recognize Long-Term Care Costs. Medicare will only cover limited stays in “skilled” nursing facilities. Most long-term care facilities are considered to be semi-skilled or “custodial” in nature and are not covered.

If you’re incapacitated for long periods of time, you have several options, but almost none of them are cheap. Here’s a sampling of median annual costs from my home state (Illinois), as surveyed by Genworth:

– Nursing Home (private room) $77,000

– Nursing Home (semi-private room) $62,000

– Home Health Aide $47,000

– Assisted Living (one bedroom) $46,000

– Adult Daycare $17,000

You can buy long-term care insurance, which is both complicated and expensive for middle-aged buyers, or consider the family option. Do you have relatives who could provide in-home care or supervise your care management? Staying at home is usually the least expensive mode of care, but it requires careful monitoring.

* Failure to Consider Tax Issues. Withdrawals from nearly all 401(k) and individual retirement plans involve paying taxes at your marginal rates.

You can have a certified financial planner figure out a tax-efficient withdrawal strategy or create one yourself. Two easy ways of reducing taxes are to invest in a Roth IRA or Roth 401(k). These vehicles require that you pay taxes on contributions, not withdrawals.

Another tax-friendly strategy is to create a portfolio of dividend-paying stocks. The top federal rate on dividend income is 23.8 percent — a 20-percent rate plus 3.8 percent for the Affordable Care Act tax. Note: States may impose additional taxes on dividends and retirement income.

The best defense against a poorly executed retirement is to plan ahead. A qualified financial planner can craft a strategy that takes into account all anticipated expenses plus a cushion for rainy days.

John Wasik is the author of Keynes’s Way to Wealth and 13 other books. He writes and speaks all over the world on investor protection, personal finance and financial planning.

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