Hidden Costs in Retirement

Unanticipated costs can cut deep into your retirement, and most people never consider any of them when planning for their golden years.

[ad#Google Adsense 336×280-IA]Investment costs, the government and inflation are the culprits, and they cut a whole lot deeper than you think.

The investment industry is always standing in line for a big part of what you earn on your money.

Let’s suppose you expect to earn 7% on your nest egg.

Between advisory fees, 12b-1 fees, a trustee, annuity costs, tax preparers, front- and back-end loaded funds…

The list is endless.

The average investor’s annual cost is above 2%.

Your nest egg just dropped to an annual return of 5%.

The chart below shows how, over 20 years, the financial industry got 31% of your growth.

Then Big Brother in D.C. gets his share. Many believe they are living tax-free in retirement because their Social Security is tax-free.

No way, José!

There are hidden taxes based on your investment return that can increase the part of your Social Security that is taxed and Medicare Part B and D deductions.

And don’t forget phaseout deductions. I lost part of my interest deduction for my home last year because I made enough money to kick me into what I call the “secret” taxes.

Between federal, state and local taxes, you can literally lose another 2% of your investment return to our friends in Washington.

Your 7% just became 3%.

That’s a total of 53% from 20 years of growth of your investments gone, before you pay one bill.

And then Father Time shows up in the form of inflation. It’s been pretty tame for a long time, so most don’t even think about it. But it too takes its bite and, over a 20- to 25-year retirement, even at current levels, it will hurt.

The only solutions I know of are to be vigilant about what your investments are really costing, work the tax-free, tax-deferred options available, and make sure that after you pay your bills, you have something left to pay inflation, too.

Breaking even each month is a long-term inflation trap that will impact all of us.

Sorry for the negative slant this week, but we all need to hear this.

Good investing,

Steve

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Source: Wealthy Retirement