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Don’t Let These Financial Surprises Trip You Up



Key Takeaways:

  • Retirement surprises such as higher-than-expected taxes or health care costs can threaten your financial future.

  • “Life happens” surprises — home repairs, being sued, etc. — can have major financial impacts.

  • Not sure if you are in good shape? Consider stress testing your wealth plans.


Retirement Surprises

Unexpected developments when you’re no longer working—and relying on income from savings and investments—may be the most feared type of financial surprise. Without the safety net of a steady paycheck, any uncertainty around money can potentially create a lot of anxiety.


Higher-Than-Expected Taxes

Many retirees count on sliding into a lower tax bracket after they’re out of the workforce. While that happens often, the opposite does occur — leaving them with higher-than-expected tax exposure. That might happen when people forget Social Security benefits may be taxed, or when they start taking money out of certain retirement accounts (particularly if they’re also getting income from pensions, deferred comp plans, and the like).

 

To sidestep this problem, pay close attention to your annual earnings from all sources and the income levels of the various tax brackets. In some cases, converting a tax-deferred account to an account that allows tax-free withdrawals in retirement can also help keep the IRS at bay.


A Longer-Than-Expected Life

Living longer than you thought should be one of life’s nice surprises. And it probably is — unless you’re not financially prepared to fund your lifestyle far enough into the future. While it may seem ludicrous to think you’ll live to see 100, advances in medicine to roll back the clock on our bodies are becoming more common. In general, it can make sense to estimate a hefty life span in your financial planning rather than aiming low.


Pricier Health Care Costs

Since 2007, high-income Medicare enrollees have been required to pay a surcharge for Part B coverage. A surcharge for Part D premiums was added in 2011. This surcharge is determined by income from your income tax return of the year before last and is recalculated annually. For your 2024 Medicare premiums, your 2022 income tax return will be used. This means you probably should be aware if you’ll pay more for Medicare in a given year — but in many cases, people just aren’t paying close attention. The good news: You may be able to sidestep this extra expense. If you’re married and one of you is still working, consider utilizing the worker’s employer-sponsored health care plan and not signing up for Medicare just yet (if the plan allows you to do so).

 

Then there’s long-term care, which is most beneficial when it’s in place well before it’s needed. If it’s purchased in response to a health issue, it can be extremely expensive. There are many stories of people who earn or have too much money to qualify for assistance but don’t have enough wealth to fund the cost of assisted living care.


Higher Personal Expenses

Pre-retirees may often hear that their expenses will reduce significantly once they retire. However, it’s quite common for expenses to hover around the same level they were during someone’s final few working years.

 

Additionally, the cost of home and car maintenance could still be significant—especially the unplanned repairs. Of course, forces beyond your control (such as inflation’s big surge a few years ago) could cause your cash outflows to rise more than anticipated. The upshot: Don’t bank on retirement being cheap when estimating the expenses for your golden years.


‘Life Happens’ Surprises

The number of tasks we manage each day can seem Herculean, so it’s easy to see how financial surprises could creep up on us. Some to look out for:


Overlooked Payments

The fees you might pay on overdue bills won’t jeopardize your financial health, but why pay them at all, if you don’t have to? Consider setting reminders to ensure you don’t forget an important financial obligation. It’s easy to set up account alerts via text or email to remind you of upcoming due dates — or you can schedule regular online payments for recurring bills.


Home Repairs

A fallen tree, a wildfire, a flood — life happens. Or maybe that roof you’ve been meaning to fix but never got around to finally gave out. An adequate emergency fund is vital for these situations. So is having the right homeowner's insurance for your unique risk profile. That goes double if you have multiple homes in different states. These scenarios can lead to complications, particularly if the homes are covered by policies from different insurance companies. Or say your home was built using expensive or rare materials. If you do not account for these factors, the rebuilding costs could easily be far, far greater than your coverage.


Lawsuits

If you have wealth, you may also have a target on your back as people look to unjustly take your assets from you. Asset protection planning can potentially legally shield your assets from future lawsuits and creditors. However, it’s essential to put asset protection plans in place before you are sued. Actions taken to shield assets after a lawsuit has been filed are likely to be reversed by the courts. Additionally, wealth protection plans need to be reviewed every few years and updated to reflect changes to your bottom line or risk exposure.


Conclusion

If you work with a financial professional who takes a comprehensive, proactive view of your financial life, chances are good that you won’t get tripped up by the types of financial surprises outlined above. Still, it’s good to occasionally review your emergency fund reserve, your various types of insurance, and any planning you’ve done around health care and other spending in retirement.

 

If you’re unsure how well protected you are against the impact of financial surprises, consider stress testing your plan to see how your financial picture could look under various scenarios. Please call us at (913) 653-8783 to schedule your complimentary Stress Test with one of our Personal CFOs.


Disclosures

Investment advisory services offered through intellicents investment solutions, inc., an SEC registered investment adviser. Certified Financial Planner Board of Standards, Inc. (CFP Board) owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, and CFP® (with plaque design) in the United States, which it authorizes use of by any individuals who successfully complete CFP Board’s initial and ongoing certification requirements.

All information has been obtained from sources believed to be reliance, but its accuracy is not guaranteed. There is no representation of warranty as to the current accuracy, reliability, or completeness of, nor liability for, decisions based on such information, and it should not be relied on as such.

 

This report was published by the VFO Inner Circle, a global financial concierge group working with affluent individuals and families and is distributed with its permission. Copyright 2024 by AES Nation, LLC. All rights reserved.

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