7 Things You Never Knew About Retirement

Source: Social Security Administration via Facebook.

The retirement "finish line" may be the ultimate goal most Americans aim for, but what lies on the other side of that finish line is a mystery to many.

Worse yet, few Americans report being prepared to cross the retirement finish line. The Employee Benefit Research Institute released a study earlier this year that showed only 22% of workers were "very confident" that they would have enough money in retirement. By comparison, nearly three times as many respondents (64%) said they were behind where they should be in the savings department.

Long story short, Americans are still pretty clueless about retirement. So with that in mind, let's have a brief look at seven things you never knew about retirement (but will know once you're done reading this article!).

1. Your money needs to last longer than everWhether you realize it or not, your retirement number might be out of date and it may not be enough to sustain you throughout your golden years.

For starters, we're living longer than ever before. According to the latest report from the Centers for Disease Control and Prevention, the average American is living to be 78.8 years old. Some 50 years ago the average American was living 70 years. Improved health education, combined with better medicines and access to healthcare, has pumped up life expectancies. While this is great for our family and friends, it can be financially devastating for people with minimal retirement savings.

Further, medical costs are soaring as personalized medicine takes shape. Instead of one-size-fits-all treatments, drug developers are focusing on genes to treat diseases and disorders that are specific to certain types of people. This personalization comes with a high cost. The 2015 Retirement Health Care Costs Data Report from HealthView Services suggests that a 55-year-old couple today that plans to retire in 10 years will spend 90% of their Social Security benefits on healthcare expenses. This works out to an estimated $464,000 in lifetime expenses (with vision and dental plans included) for the couple.

Long story short, always keep saving and investing for retirement.

2. Relying on Social Security is a dangerous moveWith so many Americans unprepared for retirement, it looks as if baby boomers will rely heavily on Social Security. However, this could be hazardous to their financial security.

Source: Social Security Administration via Facebook.

The Old-Age, Survivors and Disability Insurance Trust, or OASDI, paid just over 59 million beneficiaries in 2014, including nearly 11 million disabled workers and nearly 42 million retirees. Unfortunately, as baby boomers retireen masse and our lifespans improve, money will soon be flowing out of the OASDI faster than it flows in through payroll taxes. By 2033 the OASDI will exhaust its cash reserves, and if Congress can't agree to raise revenue, cut expenses, or do some combination of both, then benefits could be cut by 23% to maintain the integrity of the program through 2087.

If you're counting on Social Security as your primary source of income, then you could be in for a rude awakening. This is why so many boomers have chosen to work past their full retirement age in order to boost their savings ability and to net higher benefit payments from Social Security when filing for benefits at age 70.

3. Social Security's retirement age is risingA recent survey from MassMutual Financial Group demonstrated that one of the biggest retirement deficiencies is a lack of Social Security education.

Source: Social Security Administration via Facebook.

Per MassMututal, a whopping 71% of respondents in its 10-question quiz incorrectly identified age 65 as Social Security's "full retirement age." The reality is that your full retirement age (or the age at which you're entitled to 100% of your Social Security benefits) changes based on the year you were born. If you were born in 1937 or earlier, then your full retirement age is 65. But if you're younger than that, then your full retirement age could be as high as 67 years (for those born 1960 or later). To find out what your full retirement age is, you can visit the Social Security Administration's website.

Knowing the age at which you're entitled to full benefits could be critical, considering how much baby boomers will rely on Social Security.

4. Where you live mattersIt's a fact at least to the Employee Benefits Research Institute that a majority of Americans don't have a distribution plan for their money once they retire. This implies that most Americans aren't really thinking about how they'll withdraw or save money during retirement. But one aspect they should consider is where they choose to retire.

Each state within the U.S. is different, with some offering favorable tax treatment on income, property, and retirement withdrawals. There are also intangible factors that can come into play, such as the weather, social activities, and crime rates. Based on the latest findings from Kiplinger, Delaware was the best state to retire in. A lack of Social Security taxes, an exemption on the first $12,500 in pension income, and a ridiculously low 0.43% property tax are all reasons "The First State" lived up to its nickname.

In sum, choose where you live wisely, as it could seriously help, or hurt, your pocketbook.

5. Seniors can land big discounts in retirement On a lighter note, senior citizens can qualify for a small army of discounts.

Source: Social Security Administration via Facebook.

Some of the largest discounts for seniors revolve around becoming a member of AARP, which you can join at age 50 -- but being an AARP member isn't a requirement for all types of discounts.

Aside from discounted food in select restaurants, sales on select airlines and cruise ships, and even affordable college courses geared toward people in their golden years, senior citizens can also qualify for a bounty of free stuff. From bus rides on the Muni in San Francisco to hearing aids and tax counseling, retirees may be able to use their age to their advantage in order to get sizable discounts, which can stretch their nest egg even further.

6. Retirees often owe less in taxes than they realizeWhen we're a part of the working world we expect to pay our fair share of taxes. Between Social Security taxes, Medicare, FICA, federal income tax, and perhaps even state income tax, it may feel at times that a big chunk of our earned income goes to pay taxes. But retirees often find that's not actually the case.

Source: Flickr user Frankieleon.

The reasons are twofold. First, when we have a job, our income is taxable at ordinary income tax rates, minus deductions and exemptions. But in retirement there are certain types of withdrawals that may be free of taxation. A Roth IRA, for example, is free of taxation so long as the accountholder doesn't make any unqualified withdrawals before age 59-1/2 and holds their contributions in the account for a minimum of five years. And as we just discussed, the state where you live may also exempt taxation on certain dollar amounts of pensions or Social Security benefits.

However, our living expenses (and income) often change during retirement, too. Think about all your work-related expenses, such as gas and eating out for lunch, or the costs to take care of your children, who will likely be financially independent adults when you hit retirement age. As these expenses disappear, your need for income may dip as well. If your income needs dip enough, you may wind up in a lower tax bracket.

7. Most tax-advantaged retirement accounts are protected from bankruptcy filings Bankruptcy is the "B" word we'd rather not discuss, but given Americans' high levels of debt and low savings rate, some retirees may face it. For those who do, it's important to understand that many of their tax-advantaged retirement accounts are protected from creditors in chapter 7 or 13 bankruptcies.

Source: Social Security Administration via Facebook.

For instance, 401(k)s, 403(b)s, Keoghs, profit-sharing plans, and pensions are protected as "exempt property" under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA). These tax-advantaged retirement plans are protected with no exceptions.

Roth IRAs and Traditional IRAs are also protected, but there are limitations that could allow creditors to take some of your funds. Based on the BAPCPA, IRAs and Roth IRAs are protected up to $1,245,475 (this figure is adjusted based on cost-of-living changes every three years). Bankruptcy courts can't take any money that's necessary to support yourself, but a bankruptcy court could award money above and beyond your "support needs" to your creditors under a chapter 7 bankruptcy filing. Additionally, if you have both types of IRAs, the protected amount is the combined value of the two plans. In other words, you don't get $1,245,475 in protected funds per plan.

Now that you're "in the know," you'll be better prepared when it comes time to log your final time card and put your feet up for good.

The article 7 Things You Never Knew About Retirement originally appeared on Fool.com.

Sean Williamshas no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen nameTMFUltraLong, track every pick he makes under the screen nameTrackUltraLong, and check him out on Twitter, where he goes by the handle@TMFUltraLong.The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

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