Creating a retirement plan requires more than figuring out your cost of living and how much income you’ll need. Neglecting the cost of taxes and health care can completely undo your planning. What if you want to create a long-lasting legacy?
These three big factors are often overlooked by many people as they plan their retirement. They are highlighted in a recent article from The Motley Fool, “3 Things Every Good Retirement Plan Includes.”
Tax planning. Attaining your retirement income goals won't help much, if you're paying too much of that income to the federal government. Working tax planning into your overall retirement plan can really increase your options. For example, creating nontaxable sources of retirement income won’t just lower federal and state income tax bills, but it can also help ensure that Social Security benefits aren’t taxed. Consider a Roth IRA because its tax benefits are the opposite of a traditional retirement savings accounts. You don't get a tax break on your contributions, but the money you withdraw from the account is tax-free. The dividends and interest you receive in your Roth are never taxed.
Healthcare planning. This is a big issue for retirees because as we age, our medical issues and their costs will invariably rise. When you reach age 65, you can enroll in Medicare, but it doesn't cover some of the health-related expenses you're quite likely to see. Long-term care is probably the most significant and most potentially expensive health issue that is not covered by Medicare. To insulate yourself from potentially exorbitant long-term care expenses before you retire, purchase a long-term care insurance policy. The earlier you buy the insurance, the lower your premiums will be.
Legacy planning. If you have a family, you should work with an estate planning attorney to set up an estate plan. At age 70½, you'll have to start making required minimum distributions (RMDs) from your traditional IRAs. Roth IRAs are not subject to RMDs, which makes them a great estate planning tool.
Don’t neglect to consider the use of life insurance as part of your estate plan. The funds that your beneficiaries receive from life insurance are not taxed, making it a win-win for them. If you don’t have a lot of assets to leave behind, or if you don’t want to leave any debt for your heirs, life insurance may be a worthwhile option.
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