Expenses That Disappear in Retirement
When you think about your current spending as it relates to your anticipated spending in retirement , it ’ s also worth noting the things you ’ re spending on now that will go away . For many people , retirement marks the end of such expenses as :
• Mortgage payments . Paying off your mortgage before you retire can free up a sizable amount of your monthly spending .
• Pretax contributions and payroll taxes . Many of the taxes that are taken out of a paycheck , like Social Security and Medicare , don ’ t apply to retirement account distributions .
• Career expenses . Transportation to and from the office , business suits , parking structure fees – all of those go away once you stop working .
• Financial support for the kids . Typically at this stage of life , the kids are through college and off on their own , which typically results in less reliance on you for financial support . Don ’ t forget about any life insurance policies you might have taken out for their benefit when they were younger . ( You can stop contributing to any 529 college savings plans as well , unless you want to get a head start on helping the grandkids . Remember , you are allowed to change the beneficiary on your 529 plan .)
You ’ ll likely find that retirement has plenty of expenses you ’ ll be responsible for , so it helps to have some that disappear before you get there .
IT ’ S UNDER YOUR CONTROL
Asking if you have enough to retire is – often literally – the million-dollar question .
It ’ s important to understand that much of the answer is under your control . Four of the main drivers of a successful retirement are largely things you can start thinking about right now :
• Age at retirement . Knowing when to retire can be a delicate balance . If you choose to leave the workforce too soon , you might have to compromise on what your ideal retirement will look like . Working later can bring with it a greater degree of economic certainty , but leaves you with less time to enjoy your “ golden years .”
• Longevity . It ’ s true , no one knows exactly how long they ’ re going to live – which is why you should conservatively ( and optimistically !) assume a long life . This is especially true for women , who at age 85 or older outnumbered similarly aged men nearly 2 to 1 . 37
• Investing risk ( i . e ., growth ). Conventional wisdom holds that as you get older , you should start to move your retirement investments into less risky – but less rewarding – assets like bonds . And generally speaking , there ’ s some merit to that argument : When you ’ re in retirement and the stock market experiences a severe downturn , you typically have neither the income stream nor the time to build back your losses . But when it ’ s common for women to live into their 80s and 90s , you might need to plan on 30 years of retirement income , if not more . There definitely is risk in going too conservative too soon and taking your foot off the gas prematurely .
• Spending habits . One of the most difficult challenges in transitioning to retirement is knowing how to adjust your spending . As important as budgeting is in your working years , it ’ s even more important in retirement , when you don ’ t have a paycheck to make up for unwise money decisions . All the personal finance advice from when you were first starting out – don ’ t overspend , keep an emergency fund , don ’ t charge on a credit card anything you couldn ’ t afford to pay in cash – becomes especially important now .
There ’ s a lot that goes into being financially prepared for retirement , and the sooner you start planning for it , the more options you ’ ll have when you ’ re ready to make that transition . Partnering with an advisor who understands your priorities , your circumstances and what you want to accomplish in retirement – one who takes a holistic approach to financial planning – is invaluable . Whether it ’ s getting you started on your own retirement journey or serving as a second set of eyes on your existing plans , your Baird Financial Advisor is here to help – so when it ’ s your time to retire , you can be prepared to enjoy every minute of it .
Let ’ s get started on your journey so you can retire with confidence on your terms .
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