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3 Ugly Truths About Retirement You Need to Hear

By Maurie Backman – Aug 12, 2021 at 5:04AM

Key Points

  • Many people go into retirement unaware of what to expect.
  • These truth bombs may be hard to hear, but they'll help you better prepare for your senior years.

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This information could spare you a world of financial stress later in life.

Many people wind up financially stressed during their senior years for one big reason -- they don't learn the truth about retirement until it's too late. It's easy to think of retirement as this rosy, carefree period of life, but the reality is that many seniors struggle financially throughout it.

As a result, you're better off getting the lowdown on retirement -- even if it's hard to hear. Here are three key things you need to know.

1. You can't live on Social Security alone

One big misconception about Social Security is that it pays seniors enough money to replace their paychecks in full. Not even close.

If you're an average earner, those benefits will replace about 40% of your pre-retirement income. Most seniors need roughly twice that much money to maintain a comfortable standard of living, so if you're aiming to retire solely on Social Security with no other income source, think again.

Person with serious expression sitting on staircase and holding a laptop.

Image source: Getty Images.

In fact, a good bet is to steadily fund a retirement savings plan throughout your working years so you have the option to take withdrawals from it when you're a senior. If it's too late for that -- say, you're only a few years away from retirement with limited time to catch up on savings -- then you'll need another plan. That could involve working part-time as a senior or renting out part of your home to generate more earnings for yourself.

2. Healthcare will be a huge burden

Many people assume that once they get onto Medicare, they'll spend little to nothing on healthcare expenses. Not so.

Medicare itself isn't even free. Part B, which covers outpatient care, charges a monthly premium that can climb annually. You'll also need a Part D plan to cover your prescriptions, which you'll pay a premium for, as well.

On top of that, you'll be on the hook for copays and deductibles once you're on Medicare. And because there are services Medicare doesn't cover at all, there are some things you'll need to pay for completely out of pocket, like dental care and eye exams.

All told, the average 65-year-old male retiring this year will spend an estimated $143,000 on healthcare throughout retirement, reports Fidelity. The average 65-year-old women will spend $157,000.

Do your best to pump up your savings to cover these costs. Or if you're eligible to participate in a health savings account (HSA), aim to max one out. You can carry that money forward into retirement and use it when healthcare becomes a notable strain on your limited resources.

3. You'll still have to pay taxes

Your tax burden may end up being lower in retirement than it is during your working years. But don't be fooled into thinking you won't pay taxes at all.

Unless you house your savings in a Roth IRA or Roth 401(k), the withdrawals you take from your retirement plan will be counted as taxable income. And depending on what your total income looks like, you may be taxed on a large chunk of your Social Security benefits.

It could pay to meet with a tax professional ahead of retirement to get advice on how to minimize your IRS burden later in life. Doing so could save you a lot of money -- and a lot of stress

Don't get caught off guard

The above information may be hard to hear, but it's better that you learn it now, when you might still have time to adjust your plans. Knowing the truth about Social Security, Medicare, and taxes will put you in a better position to prepare appropriately for retirement so you can avoid the financial stress many of today's seniors routinely face.

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