One of the things that always worried me before I retired was that I couldn’t honestly figure out what I would actually need to live on after I stopped getting my weekly paycheck. In other words, what would my retirement expenses be?
Almost all of us dream of the day we can stop working for good, but we all still worry about our finances and that can cloud even the sunniest visions of retirement. What will be and how will you cover everyday expenses when you no longer can count on a payday? Fortunately, there are some costs that actually do go down or simply disappear once you quit the daily rat race. That really helps you add some bucks to your new budget and keeps your standard of living from crashing down on your head when you start depending on your retirement savings and Social Security for most of your spendable funds.
Expenses That Disappear in Retirement
Following are 10 big expenses that will shrink or vanish during your retirement that you just may not have thought about!
1. Commuting costs say bye-bye
The daily grind of commuting really does wear away at your wallet. In fact, the average American worker spends over $3,000 annually on commuting costs, according to a 2017 survey commissioned by Citibank. And that number keeps rising. The cost of gasoline, car insurance, and the actual car itself keep on going up and don’t forget tolls and parking if you use typical commuter travel lanes in and around big cities. If you can eliminate even one household vehicle, reduce your driving to pleasure miles only, and save on the gas and insurance, you have just saved hundreds of dollars a month on your typical family budget! On average that is about $300 a month.
2. Payroll taxes are only for people on a payroll
A paycheck is a beautiful thing—but it is often less pretty than it appears on the surface. Payroll taxes siphon 6.2% of your salary for Social Security, and 1.45% more for Medicare.
In 2018, you stop paying taxes for Social Security on any amount you earn above $128,400 ($132,900 for 2019) and that amount goes up every year! But there is no limit on how much of your income is subject to Medicare tax. If you are self-employed, instead of splitting payroll taxes with your employer, you are on the hook for the full 15.3%. But the good news is—drumroll please—once your job disappears, so does your obligation to fork over payroll taxes. On average that’s another $500-$600 a month extra in your pocket that you have been missing for years.
3. No more saving for retirement
You probably spent a really long time trying to desperately pinch pennies so you could save money for retirement, often in a tax-advantaged account such as a 401(k) or an IRA. But once you stop earning an income, you start reaping the benefits of all those years of saving for “the future”. Because the future is right now!
Instead of contributing to your retirement accounts, you will be withdrawing from them (you must before age 70½ or face stiff penalties). That means you no longer will have the “expense” of contributing up to $18,500 for a 401(k), or $5,500 for an IRA (or any of the catch-up contributions for those who are age 50 and older you may also have saved). Not contributing that $5,500 is like reducing your monthly expenses and adding almost $500 a month to your spendable needs. At just 10% savings, you will have that almost $500 extra every month (based on an income of $50,000 annually).
4. You can reduce or eliminate life insurance, disability, and/or car insurances
You more than likely have purchased life insurance to protect your family in the event that you were to die and leave loved ones without a regular income. Similarly, disability insurance is there to replace income should you become ill or injured and unable to work. Car insurance is still a requirement if you drive, but retired people can qualify for increased discounts!
When you are retiring from work, chances are good that you plan to live off of savings, investments, and Social Security benefits. In other words, if you have enough money to retire, you no longer need to insure your income. While these policies can still make sense for some retirees, others can say “so long” to these forms of insurance — and their associated costs. Keeping perhaps just enough to cover funeral expenses is a good compromise. Savings in this category add up to another $200 to $300 per month!
5. Dress for…relaxation
The average U.S. worker spends a ton on apparel and accessories for looking good at their job. Whether it’s a suit and tie or a uniform, all of us are familiar with dressing and being prepared for “success”. Well, truth be told, if you have made it to retirement, you are already there and no more spending lavishly on clothing is required for that purpose!
When you finally retire, you can trade in those fancy suits and sheaths for T-shirts and jeans. As your wardrobe becomes more modest, your apparel budget will follow suit. Savings here are about $150 a month.
6. You can move
Being retired means you are no longer tethered to your workplace. Now you will have the option to sell your house and move to a less expensive neighborhood. You don’t necessarily have to relocate to Florida or Texas, either. Sometimes moving just 20 miles farther out from your business hub can save a huge amount of money, mostly in the price of the house and the real estate taxes you pay. You could save hundreds a month on your mortgage and taxes for years if you move. Savings can add up to at least $300 a month or more!
7. Kid are nice to have visit, but they don’t live with you
You spend a lot less after your kids have finished school and moved out on their own, an event that often coincides with traditional retirement. There’s no more college tuition, no extra car in the driveway, and you won’t believe how much you’ll save on your grocery bill. Look for savings every month of $100 or even more on average.
8. Travel becomes more convenient
The beauty of retirement is that you can travel mid-week, when airfares are cheaper, or go during the shoulder season, when rates are lower. Your flexibility means you can take advantage of websites offering alternative accommodations, such as Airbnb. Savings can be $50 a month prorated annually by month.
9. Entertainment has more perks
Don’t ever be embarrassed to use a senior discount at the movies, a restaurant, or a state park, or the America the Beautiful senior pass for national parks. Many state and local governments also offer discounts to senior homeowners on things like real estate taxes.
Take advantage of the flexibility you enjoy by not having to be at the office from 9 to 5 every day. Go out to lunch, instead of dinner. You often get the same food at a much lower cost. Play golf weekday afternoons instead of weekend mornings, at a lower rate. And check out your community offerings, from free lectures at the library to free exercise classes at the senior center. Savings are about $50 a month each month!
10. You’re now the boss of you
You used to pay for the premium cable package, because the kids insisted on it. Maybe you don’t need that anymore. Downgrade your cellphone service if you don’t use the minutes and data. Cancel your membership to the swim club, if you’re not using it. Look through your credit card bill. What are you paying for that you no longer use? Now is the time to cancel the charges that are there for your kids, and pare down to activities important to you. $100 a month savings is very achievable!
It’s always possible that other retirement expenses will take the place of these savings, like healthcare costs if you become ill. That happens and there’s not a lot you can do when you finally get to your 60’s and 70’s to prevent it. Taking care of your health while you are younger can and does help. Don’t take that issue for granted.
Bottom line though is that things in retirement can be a lot brighter than you may think. We tend to look at the loss of a paycheck as a huge part of our security, but as long as there is the safety net of Social Security, the ability to save for decades into a retirement plan, and the rational scaling back of a lifestyle dictated by a growing family and the zestfulness of youth, you can and will be able to enjoy retirement to the full extent!
Have you planned out your potential retirement expenses? Have you planned for savings as well as new expenses?