It is certainly true that you should invest as much as possible for retirement. However, if you don’t have as much as all the “experts” tell you you should have, don’t fret just yet. The good news is that for most people, some major expenses tend to decrease or completely go away in retirement. Because of this, you may be able to live comfortably off of as much as 30% less than your current salary.
Even though retirement will bring a level of simplification to your life – preparing to go there is going to be very complicated. There are so many factors that have to be considered and decisions that have to be made to make sure that when you do reach retirement age, all of your carefully laid out plans will have borne fruit and you can finally enjoy this new phase in your life.
The most important thing that you have to contend with on your retirement is the fact that, generally, you won’t be earning an income anymore. For most people who either have not set up a business or are not in a field where they can do consultancy, the salary “well” dries up when you retire and the accumulation phase of your life nears its end. This means that you will have to subsist on the savings you have accumulated over the years and any investments or pensions that you have drawn up before.
For most retirees the main area of concern is whether their funds will last them for the rest of their lives. How much of the money that they have can they safely spend each year to ensure that their funds will not run out.
These questions all come down to the fear that your retirement funds will not be enough.
The good news though is that there are some expenses that will decrease when you go into retirement and this will definitely help in extending your funds. Many of the things that you pay or spend for now will most likely disappear or decrease when you reach retirement. Among these are:
Work-related expenses. You can basically write off any work related expenses when you retire. You won’t have to commute everyday and thus eliminate taxi or subway fare, or if you drive, the cost of getting gasoline for your car. Another work-related expense that will be eliminated is the cost of buying professional wardrobe. Corporate dressing can really put a big burden on your budget but upon retirement you can say goodbye to this expense. One minor expense that is also eliminated is the cost of decorating your cubicle. Insignificant, really, but when you retire every cent saved will help.
Taxes. There are some taxes that you won’t have to pay anymore when you retire. Most of these are Social Security related taxes. Depending on the type of retirement investment, you may not have to pay any taxes at all.
Retirement plan contributions. When you retire you stop paying your retirement plan premiums. The good thing is, all of your sacrifice now pays off as your retirement plan now starts paying you instead.
Mortgage payments. If in your projected plan, you will finish paying off your mortgage by the time you retire, then that’s one less payment to worry about. Of course, if you fall for one of the new 50 year mortgages, you may be paying well into your 80s.
Downsizing. A change in your personal financial outlook will also have a big impact in lessening your expenses upon retirement. The first thing that retirees often do for practical reasons is to downsize. There’s no more need to maintain a five-bedroom house if all of your kids are grown up and have families of their own. There are some who even decide to leave the city and live in the country where the cost of living is significantly lower.
Whatever the case, chances are that many of your current monthly expenses will be gone in retirement. Of course, there may be new types of expenses related to health or even those monthly vacations you’ve been dreaming about! But keep in mind that when it comes to the basics, chances are that you will be downsizing your expenses and have more cash left over for living well.
Keep that in mind if you’re feeling the pressure of retirement looming. But for now, keep investing and everything should be fine.