Chapter 2 Managing Budgets and Expenses

Pointing Out Some Retirement Worries You May Have

What are the worries and fears of retirees and senior citizens? Thanks to research and studies, we know what folks are concerned about, and this section discusses everything you need to know. Being aware of this information helps you plan ahead and prepare. The challenge for most people is this: Retirement is financially unlike any other period in their lives because retirees generally are

Working less (or not at all): Retirees have more free time in which to spend money and less earned income coming their way.
Living off investments and monthly benefit checks: During most wage earners’ working years, their income exceeds their spending, and psychologically they get used to that. For many retirees, on the other hand, spending exceeds income.
Using more medical services: Retirees use more medical services even if they have comparably good health within their peer group. They need more medical tests, spend more on prescription and over-the-counter drugs, and have more medical problems.

Many seniors and near-seniors understand these changes, which is why they worry about money and other retirement issues. Many fears revolve around concerns about running out of money. The following sections go over these specific anxieties, why they exist, and what you can do to address them.

Running out of money

One worry far exceeds all others: the fear of running out of money. Even people who possess what seems to most folks like plenty of money, worry about having enough. This section enumerates the sources of this fear and suggests what you can do about it.

One way some seniors deal with the problem of running out of money is that they continue to work during retirement. You may need to make some slight adjustments and work part time during retirement or even start a small business to help make ends meet.

Supporting others

For sure, plenty of seniors are concerned about making ends meet for the duration of their retirement. But seniors aren’t egocentrically focused on their own finances. In fact, to the contrary. They’re also concerned about other family members that they’re taking care of financially. More than four in ten (44 percent) retired Americans support one or more people living outside their home. Among those receiving support are

Adult children (53 percent)
Grandchildren (37 percent)
Elderly parents (12 percent)

Before hitting retirement, plenty of near-seniors get “sandwiched” providing for their own children and helping their aging parents. How can near-seniors who then end up retiring accomplish all of this? Consider the following reasons (and try applying them to your own life if you’re in a pickle and being sandwiched):

They continue to be frugal. Folks who saved and invested during their working years generally continue their frugality in retirement. The best savers often have trouble learning to live off their money in retirement. In those types of cases, retirees may need to understand that it’s okay to spend a little more!
They have a desire to help loved ones. Most seniors adore their offspring (not always and not all the time, of course). And nothing makes most seniors happier than helping their kids, grandkids, and extended families. Sometimes you also have to help your aging parents.
They have fears about outliving their available funds and becoming a burden to others. There’s great uncertainty about how long any one person or couple will live as well as what will happen to their personal health. So most people assume that they’ll live longer and perhaps need extensive medical care later in life, and as a result they keep more money saved. However, retirees often overlook the fact that Social Security and monthly pensions keep paying benefits as long as you live. Money left invested will also continue compounding and growing over the long term — as long as it’s invested intelligently (see Book 4, Chapter 3 for details).
They spend less on many things later in retirement. Qualitatively, as soon as folks cut back on work, they spend a lot less on work-related expenses — from clothing to commuting to buying fewer services — compared with when they had far greater demands on their time. Even among active seniors, as mobility is reduced later in retirement, travel and shopping are also reduced. Yes, people may spend more on some things (like healthcare) as they age, but in general, they spend less, which leads to folks having more of their money last longer than they may have guessed. Check out the section “How Spending Really Changes in Retirement,” later in this chapter, for the specifics of retiree spending patterns and behavior.
They live in a wealthy country with an economic bounty. Notwithstanding the severe recession of the late 2000s and the associated financial market turmoil, America is still a wealthy nation and provides a relatively high standard of living for the vast majority of people. Yes, in the years and decades ahead, the United States will likely be sharing its economic superpower status with some other emerging, higher-growth economies, but its economy should continue to grow.

Addressing your worries

Dr. Frank Luntz, author of What Americans Really Want … Really (Hyperion), is a prolific pollster and focus-group organizer who has studied retirees through focus groups and research surveys. He developed “The Seven Most Frequently Asked Questions About Retirement,” a list of questions asked by people age 60 and older.

The first six of these seven items deal with a senior’s ability to manage his cash flow and match up his income to his expenses. And the last item on the list — concerning maintaining independence and mobility — is partly related to income and expenses, too. Here are Dr. Luntz’s questions, along with easy-to-understand explanations:

Will I be able to afford healthcare when I get too old to work? Am I one medical emergency away from bankruptcy and ruin? Yes, you should be able to afford healthcare in retirement, and, no, a medical emergency or major illness doesn’t have to bankrupt you. As discussed in Book 3, Chapter 3, Medicare is a pretty comprehensive major medical insurance plan that can include prescription drug coverage. You can also buy long-term care insurance and a Medicare supplement.
Is Social Security going to be there for me? Yes, it should be. Book 4, Chapter 4 discusses this worry at length and shows you why you shouldn’t be worried about it.
Will prescription drugs be so expensive that I’ll be forced to choose between medications and food? No. The vast majority of prescription drugs have been in the market for many years and have competition from generics, which keeps costs down. You can also purchase prescription drug coverage through Medicare. Copayments, however, have been increasing over time, and the price of new drugs (such as those for treating cancer) can be quite costly.
Will I run out of money before I run out of years? No. Social Security benefits, which increase annually with inflation, continue for your life. The same is true for company pension benefits, if you elected the lifetime payment option. To ensure that your invested dollars stretch for as long as possible, be sure to follow our investing advice in Book 4, Chapter 3. Finally, if you’re a homeowner, equity in your home provides another financial safety net in case you need additional resources later in your retirement.
Will I be a financial and physical burden on my spouse or my children? Will I lose my independence and mobility? These last two questions are the hardest to answer and address. Financially, you should be fine in the long term with the advice provided in this book. However, you can’t predict your health. As you age later in your elderly years, you’ll experience an inevitable reduction in mobility and ability to do some things you’ve historically been able to do. You can make the most of your health for as many years as possible by taking sensible steps to maintain your good health. See Book 4, Chapter 1 for details.

Spending Your Nest Egg

A day will come when you have to consider how much of your retirement nest egg you can spend each year. For some retirees, that day happens right when they retire; for others, it occurs years into retirement. And for a small minority, they actually never tap into their nest egg in retirement. The following sections discuss important considerations as you decide when and how to spend your nest egg.

Considering the 4 percent rule

The vast majority of retirees need to live off at least a portion of their investment portfolio’s returns. If you’re in this majority, a logical concern you may have is determining how much of your portfolio and its returns you can use each year, while still having some reasonable expectation that your portfolio will last throughout your retirement. That’s where the 4 percent rule comes into play.

Analyses and studies have found that if you withdraw about 4 percent of your nest egg in the first year of retirement and then bump that amount up by a few percent per year for increases in the cost of living, your portfolio should last at least 30 years.

Here’s an example to illustrate: Suppose that you retire with about $500,000 invested in a balanced portfolio of stocks and bonds. The 4 percent rule would suggest that you plan on taking about $20,000 from this retirement nest egg in your first year of retirement. If you assume a 3 percent rate of inflation, in the second year you could take $20,600.

Naming the factors affecting your use of retirement assets

The preceding section explains that 4 percent withdrawals are a starting point to consider for typical folks planning retirement and expecting to maintain a balanced portfolio. However, 4 percent may not be the ideal number for you based on the amount of money you have in savings. For example, if you want to ensure that your money lasts even longer, you could try 3 percent withdrawals rather than 4 percent withdrawals.

Here are some important factors affecting whether you should use 4 percent or a slightly different number:

Actual expenses relative to your income: You may find early in your retirement that you don’t need 4 percent from your financial assets to make ends meet. This occurs perhaps because you still have some employment income coming in or your monthly checks from Social Security and pensions are sufficient for your spending needs. If that’s the case and you can delay tapping into your investment returns or income, then by all means do so.

One challenge of planning ahead is that you can’t predict unexpectedly large expenses; you can make only intelligent guesses. Be sure to see our discussion later in the chapter for which types of expenses may give your budget some stress in the years ahead.
Health and life expectancy: If you come from a family where folks routinely live a long time, you want to ensure that your money lasts as long as you do. You may have to use an investment withdrawal rate of less than 4 percent, such as 3 to 3.5 percent.
Investment performance: If you’re an investor who’s less willing to be reasonably aggressive with asset allocation (say a 50/50 mix between growth investments like stocks and real estate and lending investments like bonds), consider using a retirement withdrawal figure of less than 4 percent. Conversely, if you’re willing to be more aggressive, you could use 4.5 to 5 percent. However, be aware of the potential downside of the financial markets producing lower-than-expected returns over a number of years.
Risk tolerance: How comfortable are you with taking risk? If you’re a nervous wreck about putting even a small portion of your money in something other than bank accounts or Treasury bonds, using 4 percent withdrawals is too high a number.

How Spending Really Changes in Retirement

Seeing how much other retirees spend can help you plan your own retirement better. Our fine federal government actually collects and collates consumer spending data that can be sliced and diced many ways. With this information, how people’s spending habits change after age 65, an age by which many people retire or are close to retiring, can be analyzed.

The average number of people in the “consumer unit” (household) changes over time:

Age	Average Number of People in Household
55–64	2.1
65–74	1.8
75+	1.5

The primary reason for the decline in the average number of people in a household after ages 65 and 75 is because of the passing of an elderly spouse. So you have to make adjustments for changes in the number of people in the household to make better sense of some of the numbers. For example, you would expect a smaller number of people to eat less food.

The first column in Table 2-1 shows the average expenditures for households that fall into the 55-to-64-year-old age bracket. Of course, these are national averages and may differ greatly from how much and where you spend your own money. (Remember: Taxes weren’t accurately captured by this survey and thus are omitted, although they’re discussed briefly later.)

TABLE 2-1 Per Person Changes in Expenditures by Age Group

Expenditure	Age 55–64	Age 65–74	Age 75 +
Total expenditures	$54,783	–11.8%	–19.0%
Housing	$17,611	–8.3%	–4.3%
Transportation	$9,377	–16.1%	–34.4%
Food	$6,357	–2.0%	–13.3%
At home	$3,711	7.6%	0.6%
Out	$2,646	–15.5%	–32.9%
Healthcare	$3,825	45.8%	61.5%
Entertainment	$3,036	–7.1%	–37.8%
Cash contributions (to loved ones and charities)	$2,163	9.6%	48.3%
Apparel	$1,622	–0.7%	–34.8%

Here are the highlights of what’s shown in the data from Table 2-1:

Overall expenses per person decline significantly as do the vast majority of the individual expense categories, which are ranked in order of their overall amounts (at age 55–64).
Note how expenses drop even more later in retirement (age 75+). This decrease makes sense given that many folks downsize their housing and become less mobile. Notice the big drops in transportation and entertainment as well.
Later in retirement, apparel expenses drop. That’s because most older retirees shop less and are more content to wear what they have rather than to keep buying more.
Spending on food declines due to eating out less. Spending on food consumed at home rises a little.
Healthcare spending per person goes up significantly, which is no big surprise.
Cash donations went up, too, especially at age 75+. This makes sense, because as folks with excess money approach the end of their lives, they become more interested and motivated to give away money to loved ones and favorite charities.

It’s also useful to look at the household level changes in expenditures (see Table 2-2) that aren’t adjusted for changes in household size, because they reflect an average or typical household’s changes in expenditures over the retirement years.

TABLE 2-2 Household Changes in Expenditures by Age Group

Expenditures	Age 55–64	Age 65–74	Age 75 +
Total expenditures	$54,783	–24.4%	–42.1%
Housing	$17,611	–21.4%	–31.7%
Transportation	$9,377	–28.1%	–53.2%
Food	$6,357	–16.0%	–38.1%
At home	$3,711	–7.8%	–28.1%
Out	$2,646	–27.5%	–52.1%
Health care	$3,825	24.9%	15.4%
Entertainment	$3,036	–20.4%	–55.6%
Cash Contributions	$2,163	–6.0%	5.9%
Apparel	$1,622	–14.9%	–53.4%

Consider these highlights from the data in Table 2-2:

Large, overall reductions occur in total expenditures and in most of the individual expense categories. These reductions raise an interesting issue for your planning purposes as a couple and for consideration of how your individual health and expected longevity affects your household’s spending. If both you and your spouse have and expect to maintain excellent health, you should probably use the per person changes in spending from Table 2-1.
Note the bigger declines in housing expenses. Unlike food costs, for example, which are driven by the number of people in a consumer unit, housing costs are more fixed, so these bigger declines would be more typical of what an average retiree experiences. To realize these housing cost reductions, though, older retirees downsize their homes or take advantage of property tax breaks available through many towns and cities.
Although taxes weren’t accurately captured in this survey, they clearly would have shown a significant reduction in the retirement years when most people earn far less income and are also paying much less in Social Security and Medicare taxes, which applies only to employment earnings.

Managing Your Expenses

Most folks do a decent job managing their expenses in retirement. After all, by the time people reach retirement, they have decades of experience managing their finances and spending. That said, people make mistakes and worry about things they shouldn’t worry about while overlooking issues that they should have paid closer attention to. That’s what this section is all about.

Bigger-picture issues

Before digging into specific expenditures, let’s consider some overarching retirement spending issues and concerns. Here are the important points to keep in mind:

After you retire and stop earning employment income, one of the cash outflows that should go away is saving more money. Some folks early in retirement continue to effectively save by not using all the money coming in (for example, from Social Security, pensions, and so on). They scrimp and save and do without when they don’t need to. If your retirement analysis shows that you don’t need to save anymore, then don’t!
Throughout your retirement, you need to consider inflation. When you examine your spending now or next year, remember that you’re examining a snapshot or point in time. Over the years, most (but not all) items increase in price (3 percent per year is a good average to use, because that is what consumer price inflation in the U.S. has averaged over many years). So plan accordingly by considering not just your current spending but also your spending in the years and decades ahead.
Remain optimistic about your retirement. One study from a large accounting firm ominously warned that about 60 percent of middle-class retirees would probably run out of money if they maintained their preretirement lifestyles. Technically, that may be true, but an important detail the study failed to mention is that the vast majority of retirees spend less — in some cases quite a bit less — when they retire in comparison to their preretirement spending.

The sections that follow go through important expense categories, discuss what typically happens to retirees regarding those expenses, and offer money-saving opportunities.

Taxes

One fringe benefit of ceasing work and getting over the financial impact of losing that income is the associated and often dramatic reduction in income taxes — both federal and state — as well as in FICA (Social Security and Medicare) taxes and possibly local taxes. However, even though you’re retired, some of your taxes may actually increase or stay the same. So keep close tabs on the following taxes:

Taxes on Social Security benefits: One tax issue worth paying close attention to in retirement is the triggering of taxes on Social Security benefits if your income exceeds particular thresholds. You also may get socked with higher taxes if you begin collecting Social Security benefits before full retirement age and you’re still earning income above a specific threshold. If you can reduce your income below the thresholds, you can save a lot on taxes. These issues are covered fully in Book 4, Chapter 4.

If you’re working part time in retirement, you may want to consider contributing to a retirement account to reduce your taxable income. You can establish a Keogh plan to allow contributions from self-employment income.

When investing your money, be sure to pay close attention to your tax situation and select investments that match your tax status.
Property taxes: If you’re a homeowner, these taxes are a significant item. Many communities offer some seniors the ability to postpone property tax payments and offer reduced tax rates for lower-income seniors. To qualify, you typically have to present a copy of your completed Internal Revenue Service (IRS) Form 1040 each year. Here are the options of one town’s property-tax assistance program for homeowners age 65 and older:
- Abatement (reduction): This option is available for those with annual household incomes of less than $49,000 (which consists of all income, including Social Security benefits and investment income) and a net worth of no more than $1 million, including equity in your home. This particular town abates 75 percent of a senior’s property tax on the first $400,000 of assessed housing value for those with incomes of less than $32,000 annually and abates 60 percent for those with incomes between $32,000 and $49,000.
- Deferment: Those with incomes of less than $125,000 per year may defer property taxes (on the first $400,000 of assessed value) for up to 15 years. Each year, the taxes deferred as well as the interest at a reasonable rate (recently 4 percent) accumulate as a lien on the property.
- Freeze: To take advantage of this option, you must be a town resident for 10 years and have an annual income of less than $100,000. This option of the program allows for an interest-free deferral for up to 15 years on future increases in the property taxes on as much as $800,000 of assessed property value. A lien is placed against the property for the amount owed. The amount of taxes paid in the year prior to application must still be paid annually after the freeze.

Housing

Many retirees are able to enjoy and benefit from the fact that they no longer have mortgage payments in retirement. To manage and even reduce your housing expenses during retirement, you have several options (check out Book 6, Chapter 1 for more in-depth discussion about your options for housing during retirement):

You may choose to downsize or move to a lower-cost area. If you live in a high-cost urban or suburban area, after the kids are grown and out in the world, you may choose not to pay higher property taxes and have so much money tied up in a home.

Before you call the moving company, don’t resign yourself to being forced to move for financial reasons. If you want to stay in your current home because you like the community, neighbors, local service providers, and area amenities, see what property tax reduction/deferment programs your town or city offers to seniors.
You may reduce household expenditures for services. With more free time in retirement, you may be able to reduce some expenditures for services such as a gardener, housekeeper, and household maintenance and repair worker.

Don’t underestimate the expertise or physical demands of particular jobs. Servicing your furnace unit may not sound like rocket science, but you can damage the unit or hurt yourself if you don’t know what you’re doing. Likewise, climbing up a ladder to clean out your gutters may sound like an easy way to save some money until you fall off and break some bones.
You may consider taking on a tenant to bring in rental income. A tenant can help you reduce some of your housing expense burdens. Bringing in a tenant is easier and less intrusive if the proposed rental quarters have a separate entrance and are completely separate from the rest of your living quarters.

It may be worth making a modest investment to configure your living space to allow for such a rental unit. Just be sure not to undermine the property’s value by changing it in such a way that makes the home unappealing to potential buyers. Consult some local real estate agents on your proposed project. Also, be sure to check local zoning laws, building codes, and community association rules for limits on renting part of your home.

Renters and owners with mortgages face different issues, unless the renters have a rent-controlled apartment they’re able and willing to stay in for the long term. The long-term downside to renting is that your rent is exposed to inflation. Don’t allow the late 2000s real estate market softness and decline fool you — rents do rise over the years and decades. Here are some strategies for reducing your housing costs as a long-term renter in retirement:

Consider shared housing. Living with others can improve your social life and reduce your costs. Check with your local senior center or senior’s group for information, ideas, and contacts.
If you’re a lower-income senior, explore rent-subsidized senior housing. The government gives funding directly to apartment owners who lower the rents they charge to low-income tenants. The U.S. Department of Housing and Urban Development can help you in your search for a rent-subsidized apartment and with understanding the income restrictions to qualify. (Visit www.hud.gov/apps/section8 for more information.) Low-rent apartments are available for senior citizens and people with disabilities as well as for families and individuals. Your state or locality may also have additional programs providing affordable housing to seniors. Many localities have an Area Office on Aging to help seniors identify programs for which they’re eligible.

Utilities and communication

When energy prices seemed to be spiraling out of control and were ever higher in the mid- to late 2000s, folks on relatively low, fixed incomes — as some seniors are — really felt the pinch. Thankfully and predictably, that bubble broke and prices came back down.

Changing the energy and communication sources you’re using in your home or car isn’t a simple matter, of course, for everyone. However, that doesn’t mean you’re powerless to reduce your utility bills. Here are some steps you can take:

Get an energy audit of your home. Especially if you’ve lived in your home for many years, odds are it’s not as energy efficient as it could be. Contact your local utility company for an energy audit, which you generally can have done for free. Many local utilities offer special incentive programs for energy upgrades.
Improve your home’s insulation. If you own an old home, you probably can improve its insulation at a modest cost.
Take advantage of tax credits. A number of state-specific and federal tax credits are available for energy-efficiency improvements. For up-to-date information, check out the Database of State Incentives for Renewables & Efficiency website (www.dsireusa.org), which includes links to all state-based and federal incentives.
Upgrade energy-wasting appliances. You’ll have to spend some money on these upgrades, but the payback from energy savings can be quite rapid for the worst energy-guzzling appliances.
Reduce your garbage bill. You may be able to reduce the money you spend on garbage services. By recycling more of your household’s trash at your local recycling center and creating a compost pile for biodegradable trash, you may be able to reduce your garbage bill. Comparison shop for sanitation services.
Slim your water bill. Unless you have a well on your property, you have a water bill that you can lower. Consider taking water-saving actions, such as installing water flow regulators in shower heads and faucets. If you buy bottled water or have it delivered, consider instead installing a water purification system.
Address telephone costs. Over the years and decades, phone service costs have declined. However, some folks can get carried away with the increasing numbers of communication devices, including cellphones and smartphones. Be careful about dropping your home phone service and simply going with cellphone service. Cellphone service tends to have less reliable connections and may not be as easily referenced by local emergency responders when you call 911. Landline service immediately communicates your physical location when you place a 911 call.

For sure, having a simple and easy-to-use cellphone can be helpful when you’re out and about. To minimize cellphone costs, consider one of the increasing numbers of service providers that charge you only for the calls you make and receive as opposed to a monthly fixed-rate plan that offers a large number of calling minutes you may not come close to using.
Try to bundle your television and Internet with your phone bill. Most folks find that service providers in their area offer both of these services along with others like phone service. Bundling with one provider can lead to the best deals and pricing. Just be careful not to get locked into a long-term plan you may not be happy with or that has hefty early-termination fees.

Food

During retirement, you want to manage how much you spend on food. To avoid spending too much, try the following suggestions to help you save money:

Prepare more meals at home. With the extra free time afforded by leaving behind full-time work, some folks find that they have the time and energy to prepare more meals at home. An added benefit of eating at home is that you can eat healthier and plan ahead. For example, you can cook a casserole and then eat the leftovers for a couple of meals.
Buy store brands. The quality and ingredients of store brands are often the same as higher-cost name brands at a much lower price.
Eat out for lunch. Prices usually are less expensive than for dinner.
Eat out early for dinner. If you eat dinner earlier, you can qualify for early-bird dinner specials.
When you eat out, make two meals out of your purchase. Most regular servings in restaurants are large enough that you can eat the leftovers at home. Ask the server to put half of your meal in a take-out container; you can eat it for lunch or dinner the next day.
Order off the seniors menu. Some restaurants offer a discounted seniors menu with smaller portions.
Split your meal with a friend. Some restaurants serve gigantean portions, so ask your server for an additional plate and split your meal with a friend or loved one.
Order take-out. If you enjoy someone else preparing your food without spending a fortune, pick up your meal from your favorite local restaurants.

Transportation

Another benefit of leaving the workforce and retiring is the elimination of work-related transportation expenses. You no longer have a commute and the associated expenses, including gasoline, maintenance, tolls and public transit fees, parking charges, and so on. Your car should last longer, too, because you likely won’t drive as much.

You can further reduce your expenses related to transportation by possibly reducing the number of cars you own. Because you no longer have the burden of daily commutes, you may even be able to make do without a car at all and rely on public transportation. When you need a car for a weekend or other excursion, you can just rent one. Some areas also have rent-by-the-hour car rental services for local driving. Getting rid of your car also reduces your auto insurance expenses.

Personal care and fashion

Spending on clothing, shoes, jewelry, dry cleaning, and other amenities also takes a tumble when folks retire from jobs, especially those who worked in more formal office settings. You’ll also likely spend less on haircuts and salon treatments.

Don’t skimp on taking care of your health and being physically active. Consider joining a health club or gym that’s user friendly for folks of your age and interests. Of course, you don’t need a gym membership to be active. Walking, hiking, and other outdoor activities are low cost and generally healthy. Just be careful about falls, which become increasingly common as we age.

Travel and fun

One aspect of retirement you may be looking forward to is the opportunity to travel more. However, be aware that traveling and entertainment aren’t cheap. Consider what type of person you are and how your recreation desires may change once you retire.

You may end up spending a bit more on travel and entertainment during your early retirement years compared with later in your retirement years. Most folks don’t travel much later in retirement due to reduced mobility and increased health issues. Keep that in mind in the earlier years of retirement and be sure to take advantage of your mobility and money while you’re able.

During your retirement years, you can save money on entertainment and travel expenses in a couple of easy ways:

Travel during off-peak times. You probably have more flexibility as a retiree, so you can travel during the nonbusy times and take advantage of cheaper airfares, hotel rooms, and car rental fees.
Benefit from reduced senior prices. You can usually find discounted senior rates at movie theaters, hotels, public golf courses, and other venues. Don’t be shy about asking for a senior discount. If you’d rather not inquire when you’re at a venue, call in advance and ask about senior rates and who qualifies.

Healthcare

Most people end up spending more on healthcare during retirement. The average American over the age of 65 spends about $7,000 per year, and costs keep rising faster than the overall rate of inflation. In your elderly years, even if you remain in good health, you’ll probably visit the doctor more and undergo more frequent routine and preventative testing. You also may be unpleasantly surprised at the increase in how much you spend on prescription drugs and dental and vision care visits and procedures.

Insurance

Being able to retire financially is a major milestone. The fact that you’re sufficiently financially independent should enable you to reduce and eliminate some insurance, including life and disability insurance. Note: One insurance you may need more of is umbrella or excess liability coverage (see Book 3, Chapter 4 for more). As your net worth has grown over the years, your need for this coverage grows, too. This insurance protects your assets against lawsuits and other liability claims arising from your home and cars.

Subscriptions

Make sure you review all your subscriptions to magazines, newspapers, cable TV and radio, music- and video-streaming apps, and any other kinds of subscription-based services you may have signed up for. You should review these at least quarterly and make sure you’re still actually using them and that you still find them worth the expense.

Children and grandchildren

Having kids grow up and move out of the nest dramatically reduces expenditures related to your kids. Think about all the money parents spend on diapers, day care, toys, sports, music lessons, activities, braces, and so on. If you had kids later in life, or have a special needs child, you may still have some expenses into your senior years. The same may hold true with helping to pay off your kid’s student loans. So factor these expenses into your financial plan.

Your grown children and their offspring (your grandkids) may need or want your financial assistance sometime during your retirement years. If you can afford to help them, consider doing so. But be mindful of keeping them from taking responsibility for their own lives; if they learn that they can always get more money from the First Bank of Mom and Dad, they’ll always come around.