Retirement is a time to relax, unwind, and enjoy the fruits of your labor. However, it’s also a time when financial surprises can emerge. Here are five financial surprises newly retired individuals should be aware of and steps to take to mitigate their impact with the help of FSL Tax and Accounting Services.

Avoid These Financial Surprises for Newly Retired

1. Health Emergencies and Long-Term Care

For many retirees, the most significant financial surprise is the unexpected cost of health emergencies and long-term care. However, even with health insurance, out-of-pocket expenses can quickly add up.

Tip: Consider purchasing a long-term care insurance policy to help cover the cost of care if you need assistance with daily living activities. Also, explore options like health savings accounts (HSAs) and flexible spending accounts (FSAs) to help offset medical expenses. FSL Tax and Accounting Services can help you understand the tax implications of these strategies and recommend the best options for your specific situation.

2. Your Pension Plan

Many retirees rely on pension income as a significant portion of their retirement income. However, not all pension plans are created equal.

Tip: Understand the financial health of your pension plan. If your pension offers a lump-sum payout option, carefully consider the pros and cons before deciding. Consult with a financial advisor to determine the best course of action based on your circumstances. We can provide expert advice on pension planning, including tax implications of lump-sum payouts and potential tax-saving strategies.

3. Taxability of Social Security Benefits

Social Security benefits can be subject to income tax if your combined income exceeds certain thresholds. Additionally, you may have a reduction in benefits if you are still working and receiving Social Security benefits.

Tip: If you are still working, consider delaying your Social Security benefits until you reach full retirement age to maximize your monthly payments. Also, be mindful of your combined income, including taxable interest, dividends, and other sources of income, to avoid paying taxes on your Social Security benefits. Our team of experts can help you determine your Social Security benefit tax liability and identify strategies to minimize your tax burden.

4. Future Tax Rates

Tax laws and rates can change, potentially impacting your retirement income. Therefore, it’s essential to consider how future tax rate changes may affect your financial situation.

Tip: Diversify your retirement investments to help mitigate the impact of potential tax changes. Consider tax-advantaged retirement accounts like 401(k)s and IRAs, which offer tax benefits on contributions and potentially on withdrawals. FSL Tax and Accounting Services can help you develop a tax-efficient retirement investment strategy that aligns with your goals and risk tolerance.

5. Minimum Required Distributions

If you have retirement accounts like 401(k)s or IRAs, you must take minimum required distributions (RMDs) starting at age 73. Unfortunately, failing to take RMDs can result in penalties.

Tip: Understand the RMD rules and create a withdrawal strategy that aligns with your retirement goals. Consider consulting with a financial advisor to help you plan for RMDs and minimize their tax impact. We’ll help you calculate your RMDs and develop a customized withdrawal strategy that minimizes your tax liability.

Expertise You Can Trust

Retirement can be rewarding, but preparing for potential financial surprises is essential. However, by working with FSL Tax and Accounting Services, you can receive expert guidance and personalized advice to help you navigate these challenges and enjoy a more secure and financially fulfilling retirement. Our team of experienced professionals can assist you with tax planning, retirement planning, and other financial matters to ensure you are well-prepared for the future. Call 678-702-7218 or fill out our online inquiry form to schedule a consultation and learn how we can help you avoid financial surprises during retirement.