The general rule of thumb is that you can expect your expenses to be 70 to 80% of what they were before you retired. Now, this is just a general rule. One of the main assumptions people have about retirement is that they will spend less than before reaching this milestone. While this may be true in many cases, the difference in spending is less significant than you think.
While some expenses, such as payroll taxes (if you're not working), travel expenses, and disability insurance, often go away in retirement, many others don't. Here's a list of the highest retirement costs an average household faces and some tips on minimizing them. A recent report from the Joint Center for Housing Studies at Harvard University states that 46% of homeowners between the ages of 65 and 79 (and one in four people over 80) are still paying a mortgage. In addition, according to an American Financing survey, many surveyed believe they may never pay their mortgage.
By contrast, 34% of people aged 65 to 79 (and 3% of people over 80) had mortgages in 1990, so it's evident that Americans today are less averse to debt than they were a few decades ago. Paying off your mortgage and accumulating capital before you fully retire is an excellent first step and one of the smartest things you can do to keep your living expenses under control after you stop working, giving you more leeway when it comes to other costs. Alternatively, consider downsizing your home to avoid mortgage debt altogether. If you decide to go this route, ensure you receive a realistic estimate of the value of your home and consider closing costs and taxes.
It's common for sellers to get less than they initially expected. While transportation costs will undoubtedly be reduced when you retire, not all transportation costs will follow suit. This includes vehicles, gas, insurance, maintenance and repairs, car rental, leases, payments, and public transportation. Buying car insurance yearly is one of the best ways to save money.
Alternatively, requesting rides from services like Uber or Lyft, especially if you don't have daily car needs, can help you save compared to traditional car ownership. To begin with, it's a good idea to seek a comprehensive understanding of everything that Medicare covers (and doesn't cover) before you retire. Doing so can save you hundreds of dollars a year. You should also familiarize yourself with long-term care.
Whether you need a policy or not, you should understand what it covers and your options. You should also familiarize yourself with out-of-pocket expenses (if you still need to get wrapped) to incorporate them into your retirement plan. Some tactics you can use to save money on food include cutting out coupons, making and sticking to shopping lists, buying commercial brands, shopping at stores that offer discounts for seniors, and using a credit card (or app) that provides a robust cashback program or points accumulation for grocery purchases. While going out to dinner less often is undoubtedly an option to help reduce food expenses, you'll need to achieve a balance, especially if you go out to dinner with other people as a social activity.
After all, relationships are a critical factor necessary for a happy retirement. It is possible to reduce utility bills, for example, by installing a programmable thermostat and using LED bulbs. Check out this AARP article on 13 Ways to Save on These Expenses. As you can see, spending declines during retirement for the average household, but not as significant as many anticipate.
Therefore, it's critical to control these costs before you retire and account for them in your retirement plan. Your financial advisor can help you analyze all of this and guide you to ensure you're better prepared accordingly. Planning for retirement can be complicated and overwhelming. Vision Retirement can help you simplify your journey.
Disclosures This document is only a summary and is not intended to provide specific advice or recommendations for any person or company. Financial Advisors located in Ridgewood, New Jersey, and Poughkeepsie, New York. We can determine when your retirement accounts and Social Security payments add up in layers to your average monthly retirement income. Therefore, it's important to detail and categorizes your expected average monthly expenses when planning your retirement expenses.
While determining your retirement budget before you retire is essential, controlling your spending during retirement can be even more vital.