You can’t afford to overlook any of these.
Retirement is supposed to be a period of freedom — a time to enjoy your days and spend time doing the things you love. And hopefully, you’ve saved well enough to buy yourself the retirement you’ve always wanted.
But as good a job as you may have done planning for retirement, there are a few hidden threats to your financial security that you may be overlooking. Here are three that need to be on your radar.
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1. Rising healthcare costs
You’re probably aware that between Medicare premiums, deductibles, and other out-of-pocket costs, healthcare is likely to be a big expense for you in retirement. But one thing you should know is that healthcare costs tend to rise at a faster pace than general inflation. That means you need to be prepared for your medical bills to go year after year.
One good way to do that is to contribute to a health savings account, or HSA, during your working years but reserve the money for your senior years. The nice thing about HSAs is that your money never expires, and it gets to grow and be withdrawn tax-free to pay for medical expenses.
Of course, not every health insurance plan is HSA-compatible. If you can’t contribute to one of these accounts, your next best bet is to boost your individual retirement account (IRA) or 401(k) contributions.
It’s also important to choose your Medicare coverage carefully every year. As your health needs change, explore your options for different Part D or Medicare Advantage plans to save on costs. You may find that switching plans leads to better coverage as well.
2. Taxes
The IRS is going to want its share of your money once you’re retired. And the scary thing is, we don’t know what tax rates are going to look like in the future.
A good way to protect yourself against rising taxes, or taxes in general, is to save for retirement in a Roth account. While it’ll mean giving up an immediate tax break on your contributions, you’ll get to enjoy tax-free gains in your Roth account, as well as tax-free withdrawals.
There are also retirement investments you can turn to that are more tax-friendly than others. Municipal bonds could be a good means of generating steady retirement income without raising your tax burden.
The interest municipal bonds pay is always exempt from federal taxes. And if you buy municipal bonds issued by your home state, you can avoid state and local taxes as well.
3. Inflation
Inflation could upend your retirement finances if your portfolio isn’t set up to beat it. Even though Social Security benefits are eligible for annual cost-of-living adjustments, those raises often fail to actually help seniors keep pace with inflation. So, in that regard, your portfolio may need to do more of the heavy lifting.
You may be inclined to invest conservatively in retirement, especially after many years of dealing with stock market volatility. But that could mean falling behind inflation and losing out.
Instead, aim to keep a decent chunk of your portfolio in stocks. But do so wisely.
Maintain a diverse mix of stocks across a range of industries. And also, you may want to aim for both growth and dividend stocks in your retirement portfolio. The growth stocks could lend to strong inflation-beating gains, while the dividend stocks could provide more relative stability and serve as a hedge against market downturns.
If you’re going to make an effort to save and plan for retirement, it’s important to be as thorough as possible. Keep these three threats on your radar so they don’t end up hurting you financially later in life.