Many of us are waiting to retire our entire lives. As pleasant as work can be, it’s still super exciting to imagine that one day, you’ll stop working, and you’ll finally be able to do all the things that you wished for so long! In fact, if you’re smart enough and you plan well, you can make many personal finance decisions that you will benefit from later on!

If this year is the year you’ll retire, you have to update your knowledge on a couple of retirement-related topics, so you will know when and how to make the best decisions and keep costs down as long as possible. So let’s see what’s in store for you!

Healthcare costs

We should start with the most important aspect of retirement: the healthcare costs. They’re the easiest to overlook when it comes to planning for retirement, and failing to make a proper plan might eventually lead to undesired disaster in retirement.

Also, they usually tend to be steep. In fact, there’s one estimate from Fidelity, that proves how a 65-year-old couple retiring this year expects to spend around $315,000 on average out of their pocket only on healthcare costs during retirement.

In fact, that doesn’t even include Medicare or other long-term care costs. Luckily, there are many ways in which you can shrink your healthcare costs, like taking care of your health as much as possible and visiting your doctor for preventive check-ups.

Also, you can use Flexible Spending Accounts, or FSAs, which will automatically let you sock away as much as $3,050 in 2023, as long as there’s a pre-tax basis to be spent on all the qualifying healthcare expenses, like eyeglasses, dental care, some medications, and even doctor visits.

Inflation

It’s very important to factor in inflation when it comes to retirement planning. After all, when retirement is very far away and you want to save $1 million for it, then $1 million won’t mean the same thing in 20 years as it does now.

When we’re talking about long periods of time, inflation has averaged around 3% annually, even if in some years it can change. This kind of rate might shrink the buying power of your money in half over a span of 25 years.

So here’s how you should include inflation in your plans: for example, you have another 20 years until you retire, and you plan to live on the equivalent of $50,000 income in today’s money (during retirement).

Well, you can take the number 1.03 and raise it to the 20th degree, which will be 1.81. Then you multiply this number by the amount of money you’ve decided to live on (in our case, $50,000), and you’ll get $90,306. A big number, right? Well, that’s the actual number you’ll end up with in 2043 with the same purchasing power as $50,000 in 2023.

Social Security

Social Security is a topic found on everyone’s lips, especially those who are bound to retire. It’s highly important to know the average monthly Social Security retirement benefit check will modify to $1,827 starting January 2023, or close to under $22,000 a year.

Of course, that’s not going to be enough for most people, and that’s exactly why you have to start planning, saving, and investing as soon as possible. However, it’s important to note that’s just an average. If you earned way more than that, you’ll automatically collect more.

The maximum benefit for all seniors who retired at their full retirement age was $43,524 a year. If you want to get a better idea of how much you should expect, you can head over to the Social Security Administration website and set up your own SSA account.

Once you do that, you can check in anytime to see your SSA’s record of your earnings, but also your Social Security benefits, based on when you decide to claim them. You can easily claim your benefits when you reach 62 years old, and as late as 70 years old. However, it’s worth mentioning that if you start collecting your Social Security benefits at 62 years old, your checks could be smaller.

Annuities

When it comes to annuities, you should definitely consider them for your retirement. However, a downside of having annuities is that the money you will spend on buying them will be gone until your heirs can have it. Even so, in exchange for that, you have to option to receive a regular income for the rest of your life.

It’s usually best to concentrate on fixed annuities, which might start paying you right away or on a deferred basis, at a certain point in the future that you have to specify. At the same time, you will avoid all those variable annuities and index annuities, especially since they tend to have more restrictive terms.

If you want to understand better what a deferred annuity can offer, remember that, until recently, a 65-year-old man would have been recently able to spend around $100,000 for a certain annuity that would start giving him money in 10 years, offering around $1,138 per month.

Deferred annuities are great if you’re worried that you’ll run out of money later in life. Besides, there’s something else you need to consider: when interest rates are higher, annuity contracts have bigger payouts. For the moment, we’re in a low-interest rate environment. That’s why you have to think about a “laddering” strategy, so you can spend only a bit of the total amount you might want to spend on annuities.

Early retirement

Even if most people didn’t manage to save enough for retirement, the other category of soon-to-be retirees, meaning those who managed to save early on and invested as much as they could, will be able to retire as soon as possible. If you’re among them but you never considered retiring early, you should!

I mean, after all, we only live once, and there are many things you still need to do (hobbies & family time, maybe). You could start collecting Social Security and retire earlier, with enough income on which you can live – such as ample contingency funds for healthcare and any other possible requirements. Early retirees tend to have better health than later ones, which means that they can be active and enjoy traveling, gardening, and golfing more.

Taxes in Retirement

Another important concern in retirement is related to taxes, so you need to know this:

• Social Security – Your Social Security income could be taxed if you come to the realization that your income crosses a particular threshold.
• Traditional IRAs and 401(k) accounts – The traditional types of retirement savings accounts will let you contribute money on any pre-tax basis, automatically shrinking your taxable income when you make your contribution. In exchange for that type of upfront tax break, your withdrawals will be treated just as taxable income.
• Roth IRAs and Roth 401(k) accounts – These accounts don’t have any kind of upfront tax break, but in case you want to play by the rules, you could withdraw money from them in retirement, free of charge. That’s mainly because you were already taxed on all the funds you contributed.
• Investment Income – Your other investments have to face taxes, as well. Short-term capital gains are usually taxed at the usual income tax rate, and long-term capital gains are taxed at 0% or 15%. Dividend income from the majority of stocks for over 60 days is usually taxed at 0% and 15%, too.
• Interest income  – The interest income is seen as ordinary income, and it’s also subject to taxation. Treasury bonds and bills have federal taxes, and corporate bonds are usually taxable at the federal, state, but also local levels.

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