When planning for retirement, many people consider the hard numbers of how much to save and where to invest their retirement savings, but often fail to consider the other factors that will affect their retirement years financially. There are many things that go into how long your money will last during your retirement years and knowing what they are can make your retirement planning more effective. Here are some of the other things that should be considered during retirement planning.
Where You Will Live
Where you choose to live during your retirement years will have a big impact on how much you spend on expenses in retirement. In some places, the cost of living is much lower than in other areas, helping your retirement savings last longer and increasing your financial stability when you are no longer working. Some places have no state income tax, like Florida, Nevada and Texas, allowing you to keep more of your retirement income. Other places do not tax Social Security income and pension payouts. Consider your options carefully when retirement planning to see if a move to another location may be in your best interests.
There are always tax considerations to be made when planning for retirement. Many people have several retirement accounts spread among 401(k) accounts, IRAs, and other types of financial accounts. When you withdraw money from these accounts can have a significant impact on the amount of taxes you will pay in any given tax year, so you want to time your withdrawals to limit the tax hit as much as possible. Some retirement accounts, like IRAs, are funded with after-tax contributions, so withdrawals from the accounts during your retirement years are tax exempt.
Social Security And Medicare Considerations
When retirement planning, you should also take into account the effects that Social Security payments and Medicare will have on your finances. Exceeding certain income thresholds can trigger federal taxes on as much as 85 percent of your Social Security benefits. Medicare Part B has higher premiums for those reporting annual incomes above certain amounts and you may be subject to a Medicare tax on your investment income. By carefully combining pre-tax and after-tax withdrawals to keep your taxable income under those thresholds, you can limit the amount of taxes you will pay during your retirement years.