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Retirement Cost

Why Retirement May Not Cost as Much as You Think

There are certainly lots of reasons to worry about whether you will have sufficient financial resources when you retire. But people tend to think less about all the financial advantages that they will accrue when they retire. While this may sound far-fetched, retirement might not cost as much as you think.

1. Saving Money in Big Ways

When you retire, you will no longer need to continue saving for retirement. The future has finally arrived. If you have been saving anywhere between 5-20% of your income, that financial diversion is no longer necessary. Also, you will no longer have to pay Social Security and Medicare taxes (unless you have a part-time job), which will save you an additional 7-8%.

2. Saving Money in Big Ways, Part 2

When you are no longer working, you are likely to save money in all sorts of small ways (and not so small ways). Commuting is one important way that you will save. Research shows that the average American worker spends over 4% of her/his income on commuting expenses. Think how much you will save once that obligation is gone!

You can save even more if you can downsize from two cars to one. The average cost of owning a car is almost $9,000 annually. You might also consider a cheaper car and look for ways to drive less.

3. Saving Money in Small Ways

Think of all the expenses that work requires. No more dry-cleaning bills. Less formal clothing requirements, so no suits, slacks, skirts, blouses, shirts, and ties that need to be replaced. No more lunches ordered in or going out to restaurants. No more buying morning and afternoon coffees. The cost of eating lunch out or ordering in can add up to thousands of dollars a year. If you buy Starbucks once or twice daily, that can add up to over a $1,000 annually.

4. Dropping Insurance

Life insurance was necessary when you were working: in case of death, it would have provided for your family, compensating for lost income. But in retirement, there is no income to replace. The same is true for disability insurance.

5. Better Tax Position

Retirement income may not be taxable. Money taken from a Roth IRA is tax-free. While 401k and IRA distributions are taxable, such income will likely be taxed at a lower rate than your paycheck. Income from Social Security is only taxed if you enjoy significant income from other sources. Even so, it is only partially taxable.

6. Housing

One strategy for conserving financial resources is to pay off the mortgage on your house before retiring. Another strategy is to downsize, selling the larger home that you no longer need and moving into a smaller house and/or into an area where housing costs are cheaper.

A vital reason for considering a house in 55 and older communities in Delaware is your financial stability. By buying a smaller home that will support you and your partner for the long-term, and which you do not need to maintain, you will take a big variable out of your retirement planning.

Source
Huffington Post
Retirement Cheat Sheet

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