When people look forward to retirement they think about how they will spend their leisure time – but there is another thing to think about – costs associated with retirement. These costs include rising health care expenses, long-term care, if needed and taxes.
It is estimated that the average healthy 65-year-old will spend about $400,000 on medical expenses before they pass away. And when someone is 75 their health care costs will be 15% of their total annual spending.
And what about taxes? Just because you don’t have a steady paycheck, the taxman is never far away. Withdrawals from Traditional IRAs or 401(k)s are taxed because Uncle Same treats the money like regular income. When you contribute to a Roth IRA, however, you pay taxes on the money upfront, and enjoy tax-free withdrawals later. Also, your pension, profits from your investments and even your Social Security can be taxed as well.