2/14/2014 4:15 PM ET|
7 expenses that vanish during retirement
These bills will disappear for many retirees, who won't miss them.
How much money will you need in retirement? It’s one of the toughest estimates to make in retirement planning.
It’s so difficult, in fact, that many people use a rule of thumb, such as 70 percent of pre-retirement income, rather than even trying to guess.
For those who love a challenge, however, estimating retirement expenses can lead to more precise planning. The good news is there are some expenses that disappear during retirement. Some vanish immediately, while others tend to diminish as we move deeper into our golden years.
Here are seven expenses you might be able to eliminate in retirement:
1. Retirement savings. While not exactly an expense, retirement savings should account for a significant part of a monthly budget during our working years. For those socking away 10 to 15 percent of their paycheck, this one item alone can account for a significant reduction in retirement expenses.
2. Mortgage. A worthy goal is to retire your mortgage by the time you retire. While everyone doesn’t achieve this goal, those who plan to pay off the mortgage can reduce their monthly expenses by a fair amount. Keep in mind, however, that paying off a mortgage does not relieve the homeowner of all costs, such as taxes and insurance.
In addition, for those who itemize their taxes, take-home pay will be less without the mortgage interest deduction.
3. Commuting. From gas to car maintenance to parking, retirees can save a lot of money while avoiding the daily grind. Those who work in congested cities can often save the most. A weekend visit to New York City earlier this month reminded me of just how much some people pay for a spot in a parking garage.
4. Life insurance. Most retirees do not need life insurance. While there are exceptions, life insurance is typically to replace the income the deceased would have earned for the benefit of dependents. By the time most people reach retirement age, they are no longer supporting dependents with their income. For those who want a small policy to pay for funeral costs, these can be found relatively inexpensively.
- Also from U.S. News & World Report: The 10 best places to retire on $75 a day
5. Family expenses. It costs a lot of money to raise a family. Just clothing, feeding and transporting a family of four puts a big dent in a monthly budget. Add to that the cost of car insurance for teenagers and a college education, and family expenses can easily become one of the largest household expense items. These costs fade away over time, however, and should be completely out of the budget by the time most people retire.
6. Payroll taxes. Payroll taxes are easy to forget until you take a close look at your pay stub. Social Security taxes cost workers 6.2 percent of their pay, up to an annual limit of $113,700 for 2013. Then there is the Medicare tax of 1.45 percent with no limit. And there is another 0.9 percent Medicare tax for those making over $200,000 ($250,000 for couples). Of course, without earned income, these payroll taxes go away in retirement.
- Also from U.S. News & World Report: Obama creates new retirement account, MyRA
7. Second car. For many retired couples, there is less of a need for a second car. Moving to one car saves on everything from a car payment to insurance to maintenance. While many couples may keep two cars when they first retire, it’s not unusual for retirees to eventually get by with just one vehicle.
More from U.S. News & World Report
VIDEO ON MSN MONEY
Birth control pills?
But, that cost is probably replaced by the Viagra expense.
Boy this author is optimistic about retirement and his enthusiasm could lead retirees to spend too much of their retirement savings too quickly too.
Here is a true story about retirement for you. I knew a retired couple pretty well some years ago. He had been a WWII Infantryman and had worked for a major railroad his entire career while his wife taught English and music at the junior high school level her entire career. They were one year apart in age. They retired in 1987 when he reached the age of 65.
Between his railroad retirement plan and her Social Security income in 1987 they had $2850 per month in combined income, plus a nest egg of $100K, which then was firmly middle class. They sold the family house which was paid for and moved into a rental double-wide on a half-acre in rural Michigan where they were from, then bought a camping trailer, as well as a lot for it at some camping resort in central Florida, and became snowbirds, living summers in Michigan and winters in Florida.
Fast forward to 2008. He was 86 and she was 85. Their retirement savings were being depleted at a rapid rate and $2850 per month wasn't enough income to get both of them into a nursing home. They had been able to sell the resort space in Florida but not the old camping trailer, and were still paying rent on the double-wide in Michigan, which had risen by double to $800 per month since 1987. Their utilities had also doubled to an average of $150 per month including cable TV, and both grocery prices and prescription drug costs had likely tripled since 1987 too.
Worse yet neither of them could walk any longer, nor drive, and both needed expensive medical care, as well as oxygen, as well as a caregiver to cook and clean, plus a daily nurse visit, plus someone to go shopping and pick-up their prescriptions, drive them to doctor appointments, and anything else that they needed. They got lucky that a son-in-law was willing to mow their lawn and plow their driveway for free, and an adult daughter was willing to shop for them once per week and visit them on Sundays, and run them to the doctor when they needed to go too.
How much does a caregiver 8 hours per day cost at $9 per hour, $72 per day, 6 days per week, on a monthly basis? What about the daily nurse visit? Another $50 per day 6 days per week. What's the donut hole cost, on-top of the ever-rising cost of groceries and utilities? Trouble, big trouble, and that was before his first of four strokes, as well as before his wife fell and broke her arm and separately her hip. By January, 2009 their entire life's savings had been depleted and they really needed a live-in caregiver but how do you pay for it?
He lived until September of 2012, and she is still alive today in a nursing home at the age of 93. I paid for their lack of retirement financial planning heavily, as the woman that I was engaged-to and had hoped would become my 2nd wife became a martyr for her dad's care, even though we lived 1300 miles away. First she was spending a week per month there, and then two weeks, and then, starting in May of 2009 after his 2nd stroke, full-time, never to come home again.
I planned to retire at age 60, but I have decided I really enjoy having plenty of money.
I may just keep working.
The old coot increasingly disliked me as I was seen as competition for his only full-time caregiver, in-fact he wouldn't even let me stay at his house so I had to get a motel when I visited, and eventually between his increasing dementia-fueled hatred of me, her jealousy due to me seeing old friends while she was away and not throwing even more of our scarce assets onto the fire, and way too much stress, she left me 9 months after she started her full-time martyrdom in Michigan.
Some people want to enact Chained-CPI on Social Security, supposedly to save our government money, which will trim benefits paid later in life to retirees, right when retirees need more income coming-in, not less. For whatever reason too many of us forget about what 20 years of inflation does to fixed retirement incomes, and too many don't know how expensive retirement later in life can be either.
Do you have $7000 per month for a nursing home coming in today, or $14,000 for you and your wife, as that is what they will cost in just 30 more years! If you don't, your family is going to suffer, if you even have a family who cares. My former fiancee's parents had 7 kids, and only one of them cared enough to give them more than 1-2 days per week, while 5 others lived over 1000 miles away.
So if you get offered long-term care insurance earlier in life buying it might not be a bad idea, as the conservative wing of our government could care less what happens to you or to your family in your time of greatest need, later in life when your outflow exceeds your income by double or triple and there is no possible chance short of winning the lottery to increase your income either.
This reporter knows nothing of life insurance. Most people still need considerable amounts of life insurance in their retirement years. Most of this is due to poor savings habits while they were working, but other things like long-term care issues and unexpected and unforseen contingencies all call for maintaining a decent amount of life insurance in retirement. If a long-term care episode such as Alzheimers were to dibilitate a spouse and this spouse needed considerable care, this could easily wipe out most people's nest egg and leave the surviving spouse in a terrible mess when the spouse passes on.
Don't most of us want to leave our surviving spouse well off and with no financial worries. Why would anyone take that chance and cancel their life insurance. Just another reason why I only buy permanent life insurance and not that cheap term crap that runs out.
This reporter doesn't think things through very well . . .
The article shoud have been titled "Smart strategies to reduce retirement costs", rather than implying the costs go away..because for most they will not.
If a retiree played just 1 round of golf per week (assume $50.00 / round) the extra $200.00 per month will easily eat up any savings from eliminating a daily work commute.
Stupid article; Even the payroll tax savings isn't a 100% given savings. If you withdrawal savings and it puts you over the limit, your social security is limited, which is a back-door tax. While it is true one can limit their income, it is not a given that people won't have to dip into savings and take a reduced SS payout
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