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Your needs will change

As a retiree, your spending needs are completely different than a family taking care of several children. If you’re older than 65, your children are probably adults and (hopefully) living independently. You don’t need to pay for school, food or clothing as you did in your 30s and 40s.

You also don’t need two cars or a big house with four bedrooms. As retired empty-nesters, you can downsize on transportation and housing expenses, which makes a big difference in the amount of money you need to live.

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You (ideally) have lower debt

After decades of payments, the outstanding balance on your mortgage and student loans is probably much lower than that of the average American. Of course, this isn’t the case for everyone. But if you were modestly disciplined with your finances and debts over the course of your career, there’s a good chance you have a fully paid off-home and no student loans by the time you’re 70 years old.

A lower debt burden means lower interest expenses and a more affordable life.

Your tax situation has changed

Payroll and income taxes are no longer a concern if you’re retired, unless you withdraw from a tax-deferred retirement account or your Social Security benefits exceed the income threshold. Meanwhile, there may be ways to minimize the tax burden on your assets and passive income. Speak to your financial adviser to see how you can minimize your passive income to maximize wealth and tax efficiency over time.

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You don’t need to save as much

After decades of saving money from ordinary income, it could be difficult to break this habit. But this is the moment. The event you were saving for — retirement — has arrived. Instead, maximizing capital gains, dividends and passive income is probably a better way to spend your time.

Here’s how much you might need

According to the Employee Benefit Research Institute’s 2022 Spending in Retirement Survey, approximately 48% of retirees said they spent less than $2,000 a month, while 33% said they spent $2,000-$3,999 a month. That first data point is unimaginable for an ordinary working family and well below what you would bring in on a $1.27-million principal. But it also may be a reflection of current economic times.

So, it’s possible that the doomsayers are overstating the crisis in retirement saving, but then again, no one has ever regretted having more money than they need.

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Vishesh Raisinghani Freelance Writer

Vishesh Raisinghani is a freelance contributor at MoneyWise. He has been writing about financial markets and economics since 2014 - having covered family offices, private equity, real estate, cryptocurrencies, and tech stocks over that period. His work has appeared in Seeking Alpha, Motley Fool Canada, Motley Fool UK, Mergers & Acquisitions, National Post, Financial Post, and Yahoo Canada.

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