You have a rough idea of how much your electric bill will be next month.
You don’t know, however, how much your electric bill will be in 30 years (feel free to sub in your own expected retirement date). That’s due to a combination of factors, many outside your control: things like inflation, advances in technology and whether we’ll be getting by on the sun’s rays by then.
The difficulty of nailing down future expenses may be one reason why nearly half of workers haven’t attempted to calculate how much money they’ll need for retirement, according to the Employee Benefit Research Institute.
If that’s you, you’re missing out on potentially good news: Many people spend less after retiring than they did beforehand. Here are five expenses that will change during your later years.
1. Health care spending
Let’s rip off the Band-Aid — an apt metaphor here — and start with one expense that is likely to go up. As you age, you’ll probably encounter health issues, which cost money.
Bureau of Labor Statistics data from 2013 showed that spending of post-retirement households (ages 65 to 79) was about 77% of spending of pre-retirement households (ages 50 to 64), according to a recent analysis from the Government Accountability Office. All expenditures on their list went down during those later retired years … except for health care spending, which jumped from $3,900 per year to $5,000.
Both your health insurance premiums and your out-of-pocket medical costs may rise in retirement, even after Medicare kicks in — especially if your employer picked up a large portion of your insurance premiums pre-retirement.
2. Saving for retirement
One of the best things about being retired is you’ll no longer have to save for retirement. Of course, if you haven’t been saving for retirement, this won’t help you. But if you have, eliminating that contribution to savings gives a noticeable boost to your monthly budget.
“Depending on how aggressively you saved in your younger years, this could be a considerable reduction in your costs,” says William Hubble, a financial advisor in Addison, Texas.
It’s also one reason why one retirement-planning rule of thumb recommends replacing just 80% of pre-retirement income.
3. Insurance costs
We already know health insurance costs may go up. But that rise could be counteracted by other insurance premiums that you may be able to drop or significantly reduce — namely, life and disability coverage.
In a typical scenario, you don’t need life insurance in retirement because you no longer have income to replace (instead, you’re drawing income from investments), and in many cases, you’ve paid off big debts, such as a mortgage. Disability insurance, meant to replace income if you’re no longer able to work, generally isn’t needed if you’re not working.
Of course, that assumes the kind of retirement that is spent primarily in a rocking chair on the front porch. These days, many retirees ease into that life, keeping one foot in the office at least part-time. If that’s your plan, and you’re relying on that extra income, you may want to continue these policies, says Hubble, though perhaps they could be reduced.