The Big Retirement Myth: You'll Spend Less


Retirement mythThere's a persistent assumption going around about what happens after one retires: Pundits, financial planners and even retirees often claim that your spending shrinks after you leave the 9-to-5 world.

Sure, your house may be paid off by then, and you may be able to ditch the expenses of commuting and buying clothes for work. That's not the full picture, though.

In good and not-so-good ways, many people end up spending more than they expect during their golden years.

The Good

For lots of folks, retirement means finally getting around to doing things you've been putting off for years. And those things cost money.

You may finally do some traveling in Europe, for example, or explore the U.S. in an RV. Want to get serious about your love for curling? Joining a league costs some money. Looking forward to overhauling the garden or taking up woodworking? That'll cost you, too. Even just traveling to visit and spend time with the grandkids can add up -- in travel costs, dinners to treat the family, and gifts and ice creams for the young ones.

Of course, you don't have to bear these costs. You can let the children and grandchildren come to you and can spend more time in public libraries than on golf courses. But the early years of retirement, in particular, are when folks tend to have significant energy and lots of plans.

The Not So Good

Unfortunately, many expenses in retirement are not so discretionary.

Health care, for example, can take a huge bite out of your nest egg. Fidelity Investments recently estimated that a 65-year-old couple retiring today can expect to pay, on average, about $230,000 on health care. That's just an average, so you might spend far less -- but you could also spend much more.

Medicare probably won't provide sufficient coverage, so you might need to buy supplemental insurance, which isn't usually cheap.

Meanwhile, though a lower income level will probably mean your income taxes will decrease, you'll still be on the hook for property taxes. And those will probably keep growing over time. If your annual property tax is $3,000 and it grows at 3% each year, it will hit $5,400 in 20 years.

Your home insurance costs will rise, too, along with your car insurance premiums, the cost of heating and cooling your home, groceries, and most other items.

And finally, whereas you might expect retirement to be a time when you're no longer raising children and supporting those dependents, you might still find yourself occasionally -- or routinely -- helping your loved ones out financially.

Ins and Outs, Ups and Downs

Still, the news isn't all bad. While you might spend more than you expected to once you retire, you probably won't keep it up. As we move into and then out of our 70s, people tend to slow down and be less active. Less travel, less eating out, and fewer hobbies can mean lower spending.

Throughout most of our retirement, we'll enjoy discounts on various expenses, too, such as movie tickets, meals, and even property taxes.

What to do

Don't let your retirement plan end up designed by assumptions you never questioned. Take some time to map out what your expenses may be in retirement, and to make sure you're saving, investing, and accumulating enough to support them.

If it looks like you're not quite where you should be, you have options. You can ramp up your saving and invest your money more effectively. (Yes, you can become a millionaire on a minimum-wage salary.) You might work a few more years before retiring, too, which can do wonders for your nest egg by boosting your Social Security benefits.

Another possibility is working part-time through part of your retirement, which can add income and possibly some useful benefits as well. It also keeps many retirees happier, giving them a social setting to belong to. Downsizing to a smaller home or moving to a less costly town or region can also make a difference.

Spend some time planning now, and you'll thank yourself later.

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The big Wall Street capitalists want to make life for Main Street as expensive as possible, and so make it virtually impossible to retire. Instead, they want you to keep on working 'til you croak.

January 13 2012 at 10:58 AM Report abuse rate up rate down Reply

Everyone is saying "Dump Obama" But did you see how these Republican candidates are living as shown on TV this morning. They are drowning in wealth. And replace Obama with who??? It AIN"T going to be any different. We are stuck in the bottom of a barrel. The partys are for the partys, not the people. Hang on people.

January 13 2012 at 10:15 AM Report abuse rate up rate down Reply

We'll have to spend less as we slip into Obama's depression.

January 12 2012 at 10:38 PM Report abuse +3 rate up rate down Reply


January 12 2012 at 6:24 PM Report abuse rate up rate down Reply
1 reply to lee.resolution's comment

Typing practice?

January 12 2012 at 7:40 PM Report abuse +2 rate up rate down Reply

By far our biggest expense with diability retirements outside the Medicare and Social Security worlds has been medical, dental and vision care, even though we are still making mortgage payments and likely will for life. Ou hope for lower costs once on Medicare Part B at 65 went down the tubes with the retirement plan's Medicare Supplement doubling in just one year the maximum out of pocket for those on Medicare. It is a repeat of the deteriorating coverage in retirement and increasing co-payments and out of pocket maximums that improvished us before Social Security. What had been health insurance with a $250 deductible and a $1,500 maximum out of pocket became $1,500 deductible plus other itemized deductibles, office co-pays and $10,000 annually out of pocket. If I could in fact work, I would be doing some low level job that paid real health, dental and vision insurance benefits, even we were both highly paid professionals before disability..

January 12 2012 at 2:40 PM Report abuse +1 rate up rate down Reply

It is very important to ask the right questions, which this article does, when planning for and living in retirement. Before you retire, you and your family, should know what you're already spending. You should analyze what it is that you hope to do in retirement and each year create a plan to fund it. What I'm finding in retirement, is that there is still no "set-it" and "forget-it" method. I have an excellent pension, a good nest egg earning some income and the hope of Social Security, but all this still requires creating an annual budget, and monitoring the family balance sheet (all assets and liabilities). For me, some expenses are up now that I'm retired and some expenses are down. I would imagine that this is and will be the case for most retirees. In order to keep a balance, plan, analyze, save and manage. For 2012, I have already been able to reduce expenses for services I do not really use or for services that just simply were not providing value for the money. This method seems to be working.

January 12 2012 at 2:34 PM Report abuse rate up rate down Reply
Fed up Senior

The article is bogus and it is poorly presehted. What you SPEND is up to you. However, because of the reasons below, you will have LESS EXPENSES.

No Social Security tax
No Medicare tax
No taxes on earned income
No outlay for business suits, ties, white shirts, shoes, etc
No paying for lunch 5 days per week
No filling the gas tank twice per week to commute to work
No saving for retirement. I am there.
No buying a new car every 3-4 years for work
No paying contractors to do work I now have time to do myself
No paying list prices as I now have time to research and negotiate before buying
Taking advantage of senior citizen discounts

Having retired three years ago, I speak from experience. We have not cut back on our activities, but have cut back on expenses.

See full article from DailyFinance:

January 12 2012 at 11:09 AM Report abuse +4 rate up rate down Reply
1 reply to Fed up Senior's comment

Question - Do you live in a BLUE State? It is very hard for Retired People to keep up with all the bills!

January 12 2012 at 10:44 PM Report abuse rate up rate down Reply

It was medical expenses that helped drive us out of the country. Now living in another country where the cost of living is far less, our quality of life has increased dramatically. An extreme?.....yes, perhaps.....but with the internet and an airline,.....we are either always there or just half a day away.

January 12 2012 at 2:37 AM Report abuse +1 rate up rate down Reply

I think it is obvious that healthcare or lack of healthcare is what is driving us all broke. What say we all marry a Canadian?

January 12 2012 at 1:07 AM Report abuse rate up rate down Reply

One has to be employed to "ramp up savings"!

January 12 2012 at 12:54 AM Report abuse +2 rate up rate down Reply