5 Retirement Expenses That Disappear After Age 70 — and What To Do With the Money
Something that many retirement projections overlook is that some of your expenses actually drop as you age.
Somewhere around age 70, on average, Bureau of Labor Statistics data shows that spending decreases in numerous categories. Here’s what tends to go first and what you can do with that freed-up cash instead.
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1. No More Commuting Tax
For many workers, transportation can be a costly line item in a budget. But after retirement, that expense can shrink dramatically.
According to the Bureau of Labor Statistics, households headed by someone 55 to 64 spend an average of $13,596 a year on transportation. But for those in the 65 to 74 age bracket, that average drops to $9,550. And it doesn’t stop there. The average annual transportation expense for households headed by someone 75 and up falls to just $6,209. That’s just 45% of what the average 55-to-64 household spends.
2. No Need To Dress To Impress
Once you leave the working world, you no longer need to buy fancy, expensive work clothes. You also won’t likely spend nearly as much on dry cleaning. Overall, spending on apparel and services drops from $1,830 at 55 to 64 to just $801 past age 75, according to BLS statistics. That’s a drop of 56%.
3. No More Mortgage
By the time many Americans retire, they’ve paid off their mortgages, translating to a sharp drop in mortgage interest and charges as Americans age. According to BLS data, 55-to-64-year-old households pay $3,221 on average, but that number drops to $1,981 for those in the 65 to 74 age group and just $1,100 for those 75 and older.
The Consumer Financial Protection Bureau notes that there’s actually been a rise in older Americans carrying mortgage debt past 65, so not all seniors benefit from this trend. However, on average, this category generates big savings for retirees.
4. No More Retirement Savings
When you’re working, advisors generally recommend that you sock away at least 10% of your annual income to save for retirement. But once you’ve retired, you no longer have to continue funding your future.
The BLS category that captures pensions and retirement contributions falls from $10,329 a year for 55-to-64-year-old households to $4,057 for the 65 to 74 group. Those 75 and older only pay $2,196. That's thousands of dollars a year that you no longer have to set aside every year.
5. No More Life Insurance
Life insurance premiums shrink as Americans age, from $760 to $568 to $484 across the major BLS age categories. While this isn’t a big drop, the reasons behind it make sense.
Life insurance is generally intended to replace income for people who depend on it. It’s also commonly used to pay off a mortgage in the event the primary breadwinner passes away. But once the kids are grown and the mortgage is paid off, many retirees find that their risk profiles have decreased and that their coverage no longer matches their needs.
Where You Can Put That Excess Money
While some expenses tend to increase in retirement, such as healthcare, many other costs decrease, sometimes significantly. This is why it’s important to keep a realistic retirement budget, as Vanguard senior financial analyst Sabino Vargas told CNBC.
If you find that your decreased spending in retirement frees up hundreds or thousands of dollars, the trick is to avoid letting it evaporate into your daily spending. Rather, give that money a job, just like you did during your working years.
If you plan on taking a dream trip in retirement, for example, funnel some of that “extra” money into a savings account dedicated to that goal. If you have no specific plans for those funds, stash them in an emergency fund so you have extra cushion in case your expenses unexpectedly go up instead of down.
The most important distinction between your retired life and your working one is that you have less room for error. While you could theoretically take on a side gig to generate emergency income, that’s not the ideal playbook for most retirees. That’s something important to remember if you find you have extra cash in retirement due to reduced expenses.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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