Even if you plan well for retirement, it's possible to encounter a fair number of unpleasant surprises once your senior years roll around. Here are three expenses that could take a frightful toll on your finances at various points in your retirement.
1. Taxes on Social Security
Many retirees get the largest share of their income from Social Security, and for an even larger fraction, it is, at a minimum, a vital part of their income picture. Anything that trims down those benefits could leave you struggling to pay your bills.
You may be aware that claiming Social Security before your full retirement age will cause your benefits to shrink. But you might also lose a chunk of your benefits due to another reason -- taxes.
Seniors are routinely shocked to learn that Social Security benefits are taxable at the federal level. And the income thresholds at which those taxes kick in are fairly modest.
But it's not just federal taxes you need to worry about. There are 13 states that tax Social Security as well, though many, thankfully, offer exemptions for people with low to moderate incomes.
It's important to prepare for whatever taxes you're going to have to pay on your benefits, especially if you think you'll rely on them heavily. There are also steps you can take to reduce the chances of your benefits being taxed. Investing for retirement via a Roth IRA, for example, will reduce your taxable income in your senior years, which could keep you under the taxable thresholds.
2. Healthcare services not covered by Medicare
Seniors commonly rely on Medicare to cover their healthcare needs. But many don't realize ahead of time just how many limits there are on what that program covers.
Dental care, vision exams, and hearing aids are a few common services that Medicare won't pick up the tab for. And getting supplemental insurance won't help there, either.
It's important to prepare for these expenses so you're not scrambling to pay for them later in life. One option is to sock money away in a health savings account so you have a source of income to tap for healthcare costs later in life. Because HSA funds never expire, you can fund an account tax free during your working years and carry that money into retirement, when you're likely to need it the most.
Another option is to look at getting a Medicare Advantage plan instead of sticking to original Medicare. These plans commonly pay for dental, vision, and hearing services, and many offer supplemental benefits that original Medicare doesn't.
3. Home repairs
Many people make it a financial life goal to get their mortgages paid off before they enter retirement so that they can stop worrying about the expenses of keeping a roof over their heads.
Only problem is, even paid-off roofs can leak.
Like the people who live in them, homes age, and sometimes, they have to be repaired. The prices for those projects can be financially devastating to people on a fixed income. So if you plan to own a home in retirement, make sure to have a healthy emergency fund. That way, you won't need to whip out a credit card to cover repairs that can't be put off.
When you're retired, surprise expenses can be scary. So don't let yourself get spooked. Instead, gear up for taxes on Social Security, non-covered Medicare expenses, and home repairs. And just as importantly, map out your financial plans in advance so you can reduce your odds of getting hurt by any of them.