7 Expenses That Vanish During Retirement

Close-up of a senior couple smiling
Getty Images
By Robert Berger

How much money will you need in retirement? It's one of the toughest estimates to make in retirement planning. It's so difficult, in fact, that many people use a rule of thumb, such as 70 percent of pre-retirement income, rather than even trying to guess.

For those who love a challenge, however, estimating retirement expenses can lead to more precise planning. The good news is there are some expenses that disappear during retirement. Some vanish immediately, while others tend to diminish as we move deeper into our golden years. Here are seven expenses you might be able to eliminate in retirement:

1. Retirement savings. While not exactly an expense, retirement savings should account for a significant part of a monthly budget during our working years. For those socking away 10 to 15 percent of their paycheck, this one item alone can account for a significant reduction in retirement expenses.

2. Mortgage. A worthy goal is to retire your mortgage by the time you retire. While everyone doesn't achieve this goal, those who plan to pay off the mortgage can reduce their monthly expenses by a fair amount. Keep in mind, however, that paying off a mortgage does not relieve the homeowner of all costs, such as taxes and insurance. In addition, for those who itemize their taxes, take-home pay will be less without the mortgage interest deduction.

3. Commuting. From gas to car maintenance to parking, retirees can save a lot of money while avoiding the daily grind. Those who work in congested cities can often save the most. A weekend visit to New York City earlier this month reminded me of just how much some people pay for a spot in a parking garage.

4. Life insurance. Most retirees do not need life insurance. %VIRTUAL-article-sponsoredlinks%While there are exceptions, life insurance is typically to replace the income the deceased would have earned for the benefit of dependents. By the time most people reach retirement age, they are no longer supporting dependents with their income. For those who want a small policy to pay for funeral costs, these can be found relatively inexpensively.

5. Family expenses. It costs a lot of money to raise a family. Just clothing, feeding and transporting a family of four puts a big dent in a monthly budget. Add to that the cost of car insurance for teenagers and a college education, and family expenses can easily become one of the largest household expense items. These costs fade away over time, however, and should be completely out of the budget by the time most people retire.

6. Payroll taxes. Payroll taxes are easy to forget until you take a close look at your pay stub. Social Security taxes cost workers 6.2 percent of their pay, up to an annual limit of $113,700 for 2013. Then there is the Medicare tax of 1.45 percent with no limit. And there is another 0.9 percent Medicare tax for those making over $200,000 ($250,000 for couples). Of course, without earned income, these payroll taxes go away in retirement.

7. Second car. For many retired couples, there is less of a need for a second car. Moving to one car saves on everything from a car payment to insurance to maintenance. While many couples may keep two cars when they first retire, it's not unusual for retirees to eventually get by with just one vehicle.

Rob Berger is an attorney and founder of the popular personal finance and investing blog, doughroller.net. He is also the editor of the Dough Roller Weekly Newsletter, a free newsletter covering all aspects of personal finance and investing.

More from U.S. News:

7 Myths of Long-Term Care
See Gallery
7 Expenses That Vanish During Retirement

While the only sure things in life are death and taxes, it's worrying about the quality of life that can really be a buzzkill.

Roughly 70 percent of Americans over 65 will need some form long-term care at some point in their lives, according to a study by the U.S. Department of Health and Human Services.

Once you hit 65, you have a 35 percent chance of entering a nursing home. The odds that you'll have to stay there for five years? About 20 percent.

With statistics like these, it's no wonder that the idea of purchasing long-term care insurance keeps popping up. Unfortunately, if you don't purchase coverage when you're in your 50s, it may be too expensive to buy once you're in your late 60s or early 70s. And if you suffer from certain illnesses, the truth is that long-term care insurance coverage may not be available to you.

The first hurdle is getting past the hype so that you can evaluate whether you need coverage -- not everyone does. Here are seven commonly held myths about long-term care.

The fact is, the vast majority of Americans will need some sort of long-term care services as they age, particularly help with Activities of Daily Living (ADLs), including getting in and out of bed, walking, bathing, dressing, and eating.

Even if you're healthy, the aging process unfortunately includes a natural decline in eyesight, hearing, balance and mobility.

It's easy to confuse "long-term care planning" with long-term care insurance, but they're not the same. In fact, making that mistake could literally send you into bankruptcy in your senior years.

Long-term care planning means developing a personal strategy and making decisions now about how you want a range of things to be handled when you or a loved one needs long-term care services down the line.

Insurance is just one of many options people consider for covering the costs of long-term care. If you buy an insurance policy but don't plan appropriately, your care could be compromised. If you develop a plan but never buy the appropriate insurance coverage or execute an advanced care directive, living will, and powers of attorney for health care and financial matters, you could wind up leaving all of your care decisions to others without the means to pay for them.

I lost my father when he was just 49 years old. But his mother lived to be 98 and was fairly vibrant and lived alone until the last year of her life.

There's no telling when you'll need your fully-realized long-term care plan to kick in, so the sooner you plan the better off you'll be.

If you're over 50, the best time to plan is now. It will make you a more informed consumer of long-term care services and will help you stay in control of tough decisions.

Nothing could be farther from the truth. Medicare does not cover the custodial services that help with ADLs. It will cover rehabilitation, home health care and durable medical equipment as long as they're deemed "medically necessary."

Medicaid may pay for your long-term care, but you need to meet strict eligibility requirements, which differ by state and often involve extensive documentation of assets. And don't think you can simply transfer all of your funds to your heirs and then apply. There's a five year "look back" rule that will require you to document where all of your money has gone.

There may be some government help if you're a veteran suffering from a service-related disability. To check your eligibility, go to VA.gov for details.

Have you priced long-term care costs lately? They're pretty darned expensive, and even with long-term care insurance, you'll be responsible for paying for some or all of the care you need.

Go to http://longtermcare.gov/costs-how-to-pay/costs-of-care-in-your-state/ to estimate what your costs could be. Then, think about the different ways you'll be able to meet that cost, either through an insurance policy, annuity, reverse mortgage, savings, pension benefits, social security benefits, or other personal income.

If there's a shortfall, long-term care insurance benefits could kick in.

Have you tried to be a 24/7 caregiver? It's pretty hard work, even for a devoted family member who loves you. No one person can be there for you every hour of every day and provide all of the care you'll need.

As part of your long-term care strategy, look into caregiving services in your area, including in-home providers, elder daycare centers, elder shuttles, meals on wheels, and other low-cost services offered in your area.

Managing a rotation of 24/7 caregivers is itself nearly a full-time job. You'll want your unpaid family members to spend their energy helping you manage your way through your need for assistance rather than resenting your lack of planning.

Really? What does your home look like?

Stairs, narrow doors, steps in odd places, low bathtubs, showers without handholds are the kinds of architectural obstacles that won't work if you have limited mobility or failing eyesight. And living alone won't help if you slip and fall and no one checks on you regularly.

At some point in time, living in a community or facility may make sense, and as part of your long-term plan, you'll want to consider it sooner rather than later.

Read Full Story