Some things cost less in retirement

Estimating how much money you will spend once you retire is an inexact science, to say the least. Rising healthcare costs alone are enough to make you think twice about stopping work, and who knows where tax rates are heading?

But there’s good news as well. Most retirees see lower expenses in a lot of areas, and some often disappear altogether:

• Payroll taxes. No paycheck means no payroll taxes, which currently total 7.65% of earned income in your working years, up to certain annual limits. They are such a given that many people don’t even realize what they’ve been paying all these years.

• Retirement savings. Whatever you’ve been saving for retirement – 5%, 10%, 15% of your annual income – is an expense you’ll no longer have when you retire.

• Food. Retirees are often able to cut their grocery costs by as much as 25% and dining-out costs as much as 35%. The reason: you’ll have more time and flexibility to shop for deals at the grocery store and local restaurants.

• Transportation. The pandemic has been a useful dress rehearsal for future retirees. If you’ve been working from home, you’ve likely already seen savings on gasoline, vehicle maintenance, public transportation – even the cost of car insurance. These lower costs will likely continue in retirement.

• Mortgage. If you’re able to pay off your mortgage before you retire, you’ll reap substantial monthly savings and some psychological benefits as well. You’ll still need to budget for property taxes, utilities, repairs, and maintenance costs, however.

• Life and disability insurance. Many retirees no longer see the need to maintain life insurance coverage at pre-retirement levels, because there are no longer salaries to replace. And disability insurance may not even be an option in retirement. But don’t make any quick decisions here; take time while you’re still working to carefully reassess your insurance needs in retirement.

• Property taxes and state income taxes. Many states offer property tax breaks after age 65, and some exempt a portion of retirement income as well.

• Clothing. If you’re a career climber, you dress for success. When you retire, you dress for recess. Chances are you’ll spend less on clothing after you stop working.

• More good news. While not as dramatic as the examples above, many retirees also say they spend less on entertainment, education, alcohol, tobacco, and pet care, for a variety of reasons.

Yes, you will likely find that some things will cost more in retirement – health care is the number-one example – but there’s a very good chance that you will be able to enjoy your current standard of living (or even higher) on significantly less money than when you were working. If I were you, however, I’d want to have a good handle on month-to-month expenses well before making such a life-altering decision. Examine how you are spending money in each of the above categories while you’re still working, and try to get an idea of what will be different when you stop.

Retirement is way too much fun to have to do more than once!