Whether retirement is a distant dream or fast approaching, planning now can help. One of the first steps in planning is thinking about what kind of retirement you desire. Do you anticipate taking on a second career or pursuing part-time work? Do you hope to travel extensively or start expensive hobbies? Will you downsize your home, move to another state or even another country? These answers will ultimately help you decide how much income you need in retirement and thus, how much you need to save.
Will your income needs stay the same, decrease or increase in retirement? The answer will be different for everyone but here are three ways your cost of living may decrease in retirement.
1. No Mortgage
If you make it a goal to pay off your mortgage prior to retirement, you can cut the cost of your mortgage from your monthly budget. This can free up cash that you can put toward other things or just reduce how much you need to pull from your savings.
This can also lower your costs in other areas. Without a mortgage to cover, you may be able to reduce your insurance coverage. One of the main factors to consider in purchasing life insurance, is to help cover your debts upon your death. But if you have removed this monthly payment, your spouse or significant other may not need as much to cover costs. It’s a good idea to re-asses how much life insurance you need after big life events like starting a family, buying a house or retirement.
2. Work Bills
Having a job means you earn money, but it can also cost money to work. When you retire, you no longer have to worry about commuting costs, work clothes and other expenses. If you used your car for getting to and from work, you may now pay less on gas, maintenance and car insurance.
In addition, many people dine out a lot while they are in the working world. Sometimes this is to grab lunch or because you are too exhausted to cook dinner. Now you may be able to reduce your food bills by cooking your own food and eating more often at home.
3. You’re Already There
The nice thing about making it to retirement is you can stop preparing for it! So while a large part of your budget during your working years likely went to building up a retirement nest egg, once you retire, you can stop building. If you have been maxing out contributions to your retirement accounts in recent years, removing retirement savings from your budget can greatly decrease your cost of living.
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