4 Reasons You'll Spend More Money After Early Retirement

There's often an uptick in recreation expenses shortly after retirement.

Middle-aged Couple Relaxing by a Mountain Brook
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By Joe Udo

One retirement rule of thumb is that retirees spend about 80 percent of their after-tax income in retirement. Generally, this doesn't work for early retirees because they save more aggressively. If you save 30 to 50 percent of your income, it makes more sense to use your expenses rather than your income to extrapolate your after-retirement spending.

If you saved aggressively and accumulated 25 times your annual expenses, then you are very close to financial independence, which means early retirement is an option. If you use the 4 percent withdrawal rule your retirement portfolio is likely to last the rest of your life. Most early retirees think their expenses will stay the same after they quit working, but that's not a safe assumption. Here's why you'll probably spend more after taking an early retirement:

Travel. Many of us want to travel more when we retire. With more time, it's possible to visit a country for two months instead of two weeks. That amount of time allows you to explore a destination in depth rather than the quick gloss vacationers usually do. Most of us have a bucket list of countries to visit, but traveling can be an expensive hobby. Travel will most likely increase your expenses after retirement unless you're committed to traveling cheaply.

It's possible to travel frugally, but you have to be more creative. In our working years, we value time more, so we don't mind paying extra for convenience. With more time, you can optimize travel financially instead. For example, airline tickets with more stopovers are usually cheaper. In retirement, direct flights don't need to be a huge priority. You can even use creative options like booking a repositioning cruise instead of flying.

Hobbies and projects. When we're working full time, a lot of things are put on the back burner. In retirement you will have time to remodel the kitchen, take a photography class, learn to play an instrument and buy the Harley you've always wanted. Yet, all these activities that you've been waiting to do will cost money. Sure, do-it-yourself projects around the house will increase the property value, but home improvements will cost plenty of money in the short term. Your retirement budget should account for a variety of potential hobby activities.

Health care. It's essential for early retirees to budget for health insurance coverage after leaving their employment. Medicare is available at 65, but if you retire early health care is your responsibility. COBRA is one option, but it only lasts up to 18 months and the price can be very expensive. Another option for early retirees is the health insurance marketplace created by the Affordable Care Act. Some early retirees might even qualify for tax credits with their lower level of income. It's extremely likely that you will use more health care services and have to pay more for health care as you get older, so you need to factor likely health care costs into your retirement budget.

Too much free time. Many retirees choose to keep busy, but it can take a few years to figure out what to do with your time. When we're working, we usually spend money in our idle time. This habit can carry into retirement when there is a lot more idle time available. If you spend your weekends shopping, eating out and going to shows, then you probably need to learn how to entertain yourself with cheap or free events.

Most early retirees are good with their finances and that's why they can retire early. However, they should realize that spending will probably increase after retirement and take that into account. But this uptick in spending isn't an insurmountable barrier for early retirees. They can work part time to cover recreational expenses or explore a hobby that doubles as an income stream. Early retirees are often resourceful and can adjust their course accordingly.

While the level of spending often increases initially upon retirement, it will usually decrease as people get older and do fewer activities. Health care expenses may increase in the later years, but travel and recreation expenses will usually go down. At some point, Medicare and Social Security benefits will kick in, and it will give you a little more breathing room to have that extra cash and benefits coming in later on in retirement.

Joe Udo blogs at Retire By 40 where he writes about passive income, frugal living, retirement investing and the challenges of early retirement. He recently left his corporate job to be a stay at home dad and blogger and is having the time of his life.

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The modern U.S. Government does not want people to retire "early." They figure you might draw Social Security and other benefits. They want you to work until you are just about ready to die.

June 23 2014 at 1:56 AM Report abuse rate up rate down Reply

You can fool some of the people some of the time but you can't fool all of the people all of the time.

June 23 2014 at 12:19 AM Report abuse +1 rate up rate down Reply

I don't believe the states department of labor can conceal the reality of the market place. The economy has been down to long because it's not cyclical it's structural and on purpose to chase cheaper labor and taxes.You can't retrain anybody in a market that changes this fast, with companies merging & aquisitioning, outsourcing, and leaving the country. This recovery was over before it got a chance to recover. It's been a game of profits and less and less about people getting a share. They just gambled your edcation and future right from under you so all they can do is make speeches. Really where are the jobs? Let me know when that ship comes!

June 23 2014 at 12:15 AM Report abuse rate up rate down Reply

BS. You’re really going to spend less. First off, you don’t have transportation expenses, thus your insurance is much less along with car repairs and fuel expenses, your clothing expense is much less, you’re not contributing to your IRA and/or retirement fund, many states your retirement income is non-taxable, many states you have an extra write off being older as well as an extra exemption on IRS your income taxes, many business give you a senior discount, and the list goes on and on…………..

June 23 2014 at 12:13 AM Report abuse +2 rate up rate down Reply

Shame these threads don't go on long enough before they change the topic.

Technology is changing so fast it has a negative effect on jobs. The exploding world population is sending people out looking for jobs in other countries which drives up prices and lowers wages in places like the US. Companies are leaving so they can excape high taxes which means even less jobs.

You will likely be forced out of work one way or the other before you reached the earliest retirement age. If you don't quit they will find away to discourage from staying or just fire you anyway they can..

June 23 2014 at 12:02 AM Report abuse +1 rate up rate down Reply
Hubert Abel

Been retired for almost 15 years. Wonder when I will start spending more money.
Oh yea, I forgot. I spent money going to Greece, France, Jamaica, Mexico, Italy twice, buying a new SUV and a boat.
I guess if I would not have retired I would still have the money I spent on the vacations, new car and boat. So the article is correct.

June 22 2014 at 11:41 PM Report abuse +1 rate up rate down Reply

If you have been following the economy since the 1970's you know it's just getting worse. The Great Recession Damage has not been fully assessed. Depending on where you live state issues could put a kink in your plans.

Infra structure demands could raise gas prices at the pump. Taxes and taxes could be entering your world of early retirement. People can't find suitable jobs an when they apply there just one of millions still looking for work. One unexpected health issue could make everything collapse.

NAFTA, China are still having an increasing effect on the trade gap ect .

June 22 2014 at 11:10 PM Report abuse +1 rate up rate down Reply

Three or so years ago, I retired early on my pension of $1528/mo after medical insurance. It has been tight financially but am "making" it. Not much frills or paying for activities but am doing fine as I'm not homeless. In a little over 4 years when I turn 62, I plan on drawing on my Social Security which is suppose to be about another $1000/mo as per my benefit statement. Once that happens, finances will be much better but not what I would call lavish, just more "comfortable". Maybe then I'll be able to do some of the things noted in the article. However, when Medicare starts, the part B premiums are more than what I pay now, which is $20/mo which would be considered a "gold plan" under ACA which I do not need to participate in so my effective income will go down. It was and is an adjustment just like any other life changes. "Just going with the flow".

June 22 2014 at 10:35 AM Report abuse +1 rate up rate down Reply
3 replies to kevincstewart's comment

The stock market is going bonkers because people don't have anywhere else to put their money. Until you spend it, it's just numbers on paper. It can appear, and then it can disappear. Just like that.

June 22 2014 at 10:00 AM Report abuse -2 rate up rate down Reply
1 reply to tom's comment

The wealthy capitalists (led by the Fed) are trying to force the unsuspecting prey into the stock market (the lambs to the slaughter) which is all the more reason to place your money elsewhere (Try U.S. Series I Savings Bonds).

June 22 2014 at 11:15 AM Report abuse -1 rate up rate down Reply
2 replies to rgkarasiewicz's comment

You got it. Plutocrats and oligarchs run America

June 22 2014 at 3:13 PM Report abuse -1 rate up rate down

See this d.barack guy's comments. Acronyms and idiocy

June 22 2014 at 3:15 PM Report abuse rate up rate down

For those of you who thing the GOP is at fault for "obstructing". How bad would it be if O had a free hand to do whatever he wanted? That 7 Tril in debt so far would have been doubled. Worst prez in history, and you can write that down somewhere and read it in the history books in a few decades. Look at the statistics.

June 22 2014 at 9:58 AM Report abuse -1 rate up rate down Reply
1 reply to tom's comment

Actually, he's about as bad as his predecessors. John F. Kennedy did try to go against the grain, but look what happened to him.

June 22 2014 at 11:04 AM Report abuse -1 rate up rate down Reply
1 reply to rgkarasiewicz's comment

Could you proof your statement about JFK? Or are you just repeating what you were told? JFK had very little time to do anything but he was born with a silver spoon in his mouth and was in the Whitehouse because of daddys boot legging moneyt.

June 22 2014 at 1:38 PM Report abuse -4 rate up rate down