Many retirement experts have determined that you are likely to need between 70 percent and over 100 percent of your current salary to finance your retirement years. But most people will never need close to their peak income once they stop working because there are some costs that you simply won’t have any more in retirement. Here are a few expenses that you can reduce or eliminate in retirement:
You no longer have to contribute to your retirement accounts. Many people tuck a portion of each paycheck into a 401(k) or other type of retirement or investment account. But this expense goes away once you stop saving for retirement and start living off your accumulated savings.
Most people will pay less tax in retirement. A sizable portion of your income is used to pay taxes. Once you no longer have earned income, you won't have to pay any Social Security or Medicare payroll taxes. You will also likely drop into a lower tax bracket, which means your income, if any, will be taxed at a lower rate. There are also tax deductions specifically for senior citizens, which will help further reduce your tax bill.
You no longer need to support your kids. No one needs to tell you that raising children is expensive. But once you retire and your children are out of college, the burden should no longer be on you to give them financial support. You can, of course, choose to support them forever, but you’re under no obligation to do so after age 18.
You can cut down on consumption related to having a job. A good chunk of your spending is probably tied to the need to be at the office five days a week. Eliminating work-related costs will be a delightful retirement event. Once you leave your job, you won't have to fill up at the gas station as often, and your car maintenance bill should also go down. You no longer have to buy work clothes, and you can reduce your lunch out budget with coworkers too.
No more excuses to pay for conveniences. Whether it's forgetting to take advantage of a rebate or not disputing an erroneous charge, many people who are working don't spend the necessary energy to save as much as they can. In retirement, you have more time to clip more coupons and research purchases so you can get the best bang for your buck. You can take the time to figure out where in your budget you are leaking money, which will likely help you reduce your expenses tremendously.
David Ning runs MoneyNing, a personal finance site that shares money moves you can make to significantly increase your chances of having a comfortable retirement. He likes to share simple changes that anyone can make, such as picking the best online savings account and figuring out whether a 0 percent balance transfer credit card makes sense.