One of the biggest challenges for anyone planning for their retirement is to attempt to foresee what their expenses will look like after they stop working. But trying to judge the difference between your costs now and your future costs is key to finding a realistic target income.
To better help you do just that, here are a few expenses that may go down and a few that may go up.
Obviously, the first category of expenses that are reduced in retirement are those related to your career or job. Depending on your circumstances, you may no longer have to pay union or organization dues, continuing education expenses, work wardrobe costs, dry cleaning, or certification fees.
Transportation costs are another item that is often lower after retiring. If you have a daily commute, you'll find your fuel costs drastically reduced. Lower daily mileage for those with a long commute now also means that your vehicle maintenance schedules and normal repairs will be lower. And you'll likely have less need to replace cars as often.
Many people also find that they can spend less on housing and consumables as a retired person. That's often because retirees aren't tied to a high cost-of-living area due to work factors and others choose to downsize deliberately so they can focus their energy elsewhere. You will also likely have fewer dependent family members to support.
Most people, upon retiring, want to make up for lost time by doing things they didn't have the time or funds for before. For many Americans, this includes travel and recreation. Whether you want to hop in an RV and see the country or take that dream cruise, travel and vacation expenses often rise for several years after retirement before settling back down.
One ever-increasing retirement expense is health care. If you've been a relatively healthy young or middle-aged person, this can be a big shock to the system. You may end up spending hundreds or even thousands of additional dollars annually on health care and related expenses — especially if you retire before you can apply for Medicare.
Wild Card Expenses
The biggest wild card when it comes to increases or decreases are taxes. If your income is from tax-deferred accounts, for instance, you may end up paying significant income tax — even on your Social Security. If, on the other hand, your income is from tax-free withdrawals, income tax due will be limited. And if you have few outside income sources, you may have no tax obligation at all.
Do you need further help coming up with dollar amounts for these increases and decreases in expenses? A professional retirement advisor is your best source of assistance. Armed with their expertise, you can successfully make a plan to account for all the things you want to do in retirement and all the positive changes it will bring. Call a retirement planning advisor from a place like Tax Deferred Benefits, LLC for more information.