You know how everyone says that you will spend less in retirement? We’d give that a solid maybe. As a rule, financial advisors say you need to replace 70 percent to 85 percent of your pre-retirement income to maintain your lifestyle. And they even have a name for the areas in which you will spend less: Welcome to the world of “consumption discontinuity.”
1. Goodbye commuting expenses!
How great is it that you will no longer need to buy that train ticket or pay for gas and car maintenance? Or fork over money to your company for the privilege of parking in the office garage? The average American worker spends $2,600 a year on commuting costs, according to a 2015 Citibank survey. That breaks down to about $10 a day being spent just to get to and from work. That doesn’t even count money spent on eating lunches out.
People in Los Angeles have the highest daily roundtrip costs at $16, with New Yorkers coming in second at $14. Commuters in Chicago and San Francisco pay $11 a day, according to the survey.
And what price tag should we put on the stress that comes from commuting?Saying goodbye to this should be easy.
2. No more saving for retirement, but frugality and budgeting needs to get real.
Yes, there will no longer be contributions to your 401(k) coming off the top of your paycheck. But that also means there will no longer be a company match, and to state the obvious, no more paycheck. What you have saved is what you will have to live off of from now until you die.
Most people will have a 20- to 30-year retirement. Experts recommend dividing it into three phases, with the bulk of your spending coming in the third phase. As an early retiree, you will likely spend more on entertainment and travel. You might even work part-time for some extra income. In the middle phase, chances are you spend a bit less and spend more time at home and with friends and family. In the third phase, health care expenses ramp up so much that this last phase of retirement is usually the most expensive phase of life.
3. Some taxes go away, but not all.
Payroll taxes include 6.2 percent of your salary for Social Security up to $118,500, and 1.45 percent more to support Medicare. When you stop getting a paycheck, you stop paying taxes on it. That said, many people are surprised to learn that Social Security benefits are taxed. If your total retirement income tops $34,000 for individuals and $44,000 for couples, up to 85 percent of your Social Security payments may be taxable.
4. Work clothes.
The purchase and maintenance of a work wardrobe is not an insignificant expense. Money Talk News reports that the average U.S. household spent $1,846 on apparel and related services in 2015. Seems low to us and we’re betting that a lot of that went toward work-related clothing. After all, work is where you spend a great number of waking hours.
Retirement eliminates the need for work clothes. It also makes you aware of just how much recreational shopping you do. Retail therapy ― shopping for fun and buying things you don’t really need ― belongs squarely in the “people who work” column. For others, jeans and yoga pants are the go-to items.
5. Eating out vs. eating in.
When you work, you eat out more frequently because it is convenient. You buy lunch a few times a week because you don’t have time to brown bag it. You grab take out for dinner on your way home from the office because you’re too tired to cook. Socializing with friends on the weekend centers around food: You meet for brunch, for dinner, for drinks ― and you pay. Once you retire, you have more time to prepare meals at home. You entertain at home because it’s easier than going out all the time, dealing with valet parking or cabs and noisy restaurants and long waits for tables. And yes, you save a little money.
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