Retirement Expenses Overview
In the Retirement Planning Section, the development of a retirement budget was discussed. A major portion of the budget is taxes - Federal taxes, state taxes, local taxes, and real estate taxes. Even if your retirement income is low, you can't easily avoid paying a significant amount in taxes. You pay taxes whenever you receive pension payments, withdraw money from a pre-tax account, live in a nice home, etc.
The two major taxes facing you in retirement will be discussed in this section - Income Taxes and Property Taxes. Besides this expense, you'll find that health care continues to consume an increasing portion of your budget. Finally, there's substantial payments for other housing-related costs, long term care insurance and life insurance. All but life insurance (covered in the Estate Planning Section) will be covered in this section.
Just as you have more control over your time and activities in retirement, you also have more control over your finances. By this I'm not implying that you necessarily have more money to work with but that you have more control over your income, taxes and expenses. By controlling your income (i.e., withdrawing investment funds in a precise manner to meet your needs) you are also controlling a large portion of your taxes. Because of your flexibility in retirement, you can exert more control over your expenses than you could when you worked or were raising a family. The exception being of course medical expenses which you may have little control over. But, putting this aside, you can better control your cost of living expense since:
- You don't have to live close to a job, but can choose to live in a more economical area;
- You no longer have a commuting cost;
- You don't need to worry about business attire;
- You no longer have the cost of raising, feeding and educating your children;
- You don't need as large a home as you did when you were raising a family;
- You have more time to prepare food at home and avoid restaurants;
- You can travel by air during the days and times when fares are cheep; and
- You have more time to search for bargains and maximize value in your purchases.