Costs To Ditch In Retirement: 5 Major Expenses You’ll No Longer Need

As you prepare for retirement, you may wonder how to replace your current income with savings, Social Security, and other assets. Fortunately, many expenses you’re paying now will disappear or shrink once you stop working. In this article, we’ll explore which costs you can ditch in retirement—and how it can dramatically shrink your required income.

Why Cutting Costs in Retirement Matters

If you’re used to earning a high salary, such as $400,000 a year, the idea of transitioning to a fixed income can be intimidating. But most people won’t need to replace their full pre-retirement income. Several expenses that take up a large portion of your paycheck now will disappear when you retire.

Expense #1: Say Goodbye to FICA Taxes

Many people forget how much they pay in payroll taxes while working. If you’re an employee, you pay 6.2% toward Social Security (up to a cap) and 1.45% toward Medicare with no income limit. In this hypothetical example, a couple earning $400,000 annually pays $27,636 in FICA taxes. Once you stop earning W-2 income, you’ll no longer owe these taxes on IRA withdrawals, interest, or even Social Security income.

If you’re self-employed, the savings can be even more dramatic. That’s because you’re responsible for both the employer and employee side of FICA—and you’ll have double the FICA Taxes as someone with a traditional W-2 job. When you retire and stop generating self-employment income, this entire self-employment tax burden disappears.

Expense #2: No More Retirement Savings Contributions

Before retirement, you’re likely putting a chunk of your income into 401(k)s or IRAs. In our example, this couple contributes $60,000 per year—$30,000 each to their 401(k) plans. When you retire, those savings contributions go away. You’ll flip from saver to spender and no longer need to factor this into your budget.

Expense #3: Mortgage Payments May Disappear

Many people enter retirement with their mortgage paid off—or close to it. If you’ve been paying $3,500 per month ($42,000 annually) toward a mortgage, that’s another large expense you can remove. Just remember: you’ll still need to cover taxes and insurance, even if the loan is gone.

Expense #4: Kids’ Costs Will Likely Drop

One of the most satisfying costs to ditch in retirement is the money spent on kids. School, sports, college, and food can add up to tens of thousands annually. In this example, $15,000 per year is freed up as children move out and become financially independent.

Food is another big one. We’ve noticed firsthand how much more food we go through when our young adult kids are home. When they’re not, our grocery bill drops noticeably—and that’s just one example of how everyday expenses can shrink when the kids move out.

Expense #5: Eliminate Work-Related Costs

Once you retire, you won’t need to budget for commuting, work clothes, lunches, or dry cleaning. Even small costs add up. We estimate $6,000 per year in expenses tied to employment that disappear once you leave the workforce.

Quick story: our adult daughter recently entered the professional workforce and started racking up dry cleaning bills. She still drops off her dry cleaning at our house to save on pickup fees—because, well, dry cleaning is expensive! It’s one of those small-but-real costs of working that can quietly build up over time.

Bonus: Ditch Life Insurance Premiums in Retirement

Many people carry life insurance while raising kids or paying off a mortgage—but once you’re financially independent, your need for life insurance often fades. As you enter retirement with fewer dependents and greater assets, your premiums can disappear too.

How Much Can You Save by Ditching These Costs in Retirement?

Let’s add it all up from our example:

• FICA Taxes: $27,636
• 401(k) Savings: $60,000
• Mortgage: $42,000
• Kids’ Expenses: $15,000
• Work Costs: $6,000

That’s a total of $150,000 you no longer need to support each year. Instead of needing $400,000 in income, you might only need $250,000—closing the retirement income gap more than you think.

And that doesn’t even account for other income sources you may have—like a pension. Depending on your specific plan, your pension may begin paying benefits right at retirement, or it may grow if you delay starting it. That extra income can further reduce your need to draw from savings.

The Bottom Line on Cutting Retirement Costs

As you plan for retirement, remember that many of your biggest current expenses will naturally fall off. When you ditch these costs in retirement, your retirement income needs may be much lower than you thought.

That realization can give you more confidence—and maybe even help you retire earlier than you expected.