I’m a Financial Expert: You Can Stop Paying These 7 Bills After You Retire
Written by
G. Brian Davis
Edited by
Amber Barkley
Commitment to Our Readers
GOBankingRates' editorial team is committed to bringing you unbiased reviews and information. We use data-driven methodologies to evaluate financial products and services - our reviews and ratings are not influenced by advertisers. You can read more about our editorial guidelines and our products and services review methodology.
20 Years
Helping You Live Richer
Reviewed
by Experts
Trusted by
Millions of Readers
Many workers worry that they’ll spend just as much or more after they retire. When they run the numbers to calculate how much they’ll need as a nest egg to support that lifestyle, it often feels like an insurmountable amount.
But most retirees actually spend less in retirement than they did when they worked. They just don’t have to pay for the same expenses that they did when they worked a full-time job.
While you don’t want to underestimate how much you’ll need in retirement, consider some of these “working person” expenses that may not wallop your wallet every month once you leave the workforce.
Retirement Contributions
It sounds obvious in retrospect, but retirement contributions and other savings goals probably eat up a hefty chunk of your income. As a working person, that is.
Kevin R. Chancellor, financial advisor and owner of Black Lab Financial Services, sees this misconception all the time. “While a person is working, they’re usually contributing to a 401(k) or other retirement account, which comes out of their annual income. If a person makes $100,000 a year and puts 20% into their 401(k), that’s $20,000 annually before any matching or profit-sharing contributions from the employer.”
Health Insurance
Health insurance is outrageously expensive in the United States. It can eat up hundreds or thousands of dollars of your monthly budget. But when you reach age 65, you qualify for Medicare coverage. Some Americans, such as those with a documented disability, may qualify at a younger age.
Chancellor said, “An individual usually doesn’t need as much income in retirement as they would while working, because large chunks of their salary were earmarked for health insurance, retirement savings and other needs that were set up with payroll deductions. In fact, health insurance is one of the largest expenses while we’re working.”
Plan for it if you intend to retire early, however. “If you retire before [you] reach Medicare eligibility, the cost of health insurance can also be one of the largest ongoing living expenses in retirement until you reach age 65 and enroll in Medicare,” he said.
High earners should also proceed with caution. “Depending upon the amount of income a person receives during retirement, they may not be eligible for the tax credits that can reduce their insurance premiums. Retirees in this case wind up paying a larger monthly premium that can be equal to or greater than the premiums they were paying under a group plan at work.”
FICA Taxes
Employers and employees alike pay Federal Insurance Contributions Act (FICA) taxes, which fund Social Security and Medicare. Self-employed workers pay both sides of it, amounting to 15.3% of their income.
Those payroll taxes disappear once you leave the workforce.
Some Income Taxes
“Taxes can be a big expense that eats into our annual income while we are working,” noted Chancellor. “However, when we retire, not only do we eliminate payroll taxes from our annual income, but we usually also see a reduced ordinary income tax bracket, since our gross annual income is reduced.”
You also won’t pay any income taxes on withdrawals from your Roth retirement accounts. You already paid taxes on the contributions back when you were a working stiff, and they’ve now compounded tax-free. Note that most workers eligible for a 401(k) or 403(b) can opt for a Roth version of those accounts, in addition to their Roth IRA. That opens the door to far greater contributions each year, as you prepay taxes to fund your retirement.
Commuting
Bronson Hill “retired” from his corporate job to launch his own real estate investment business, Bronson Equity. One of the expenses he doesn’t miss? The daily commute.
“I drive my car a lot less after leaving my day job. Not only does it save me money on gas, but also on parking and wear and tear on my car,” he said. “Most precious of all is the saved time, which I can put to productive use in either my own business or in my personal life.”
Work-Related Food and Drinks
Another set of expenses Hill doesn’t miss from his employee days: food and beverages.
“I no longer blow money on Starbucks, on unhealthy snacks, on work lunches. You don’t realize how much all that spending adds up to until you cut it all out of your budget.”
Work Clothes
Many people spend tidy sums on professional clothes, as well.
Suits, shoes, blazers, blouses, accessories — they all add up over the course of each year. And they no longer cost you a cent once you ditch your day job.
Final Thoughts
Sure, it’s possible to spend more after you retire. Many initial retirees go on travel sprees or spend more on entertainment to fill their days, at first. That usually passes however, as you settle into the rhythm of retirement.
Finally, note that many retirees either downsize or pay off their mortgage around the time they retire. That slashes your largest expense and frees up more money for doing other things — such as traveling the world.
More From GOBankingRates
