7 Costs to Eliminate Before You Retire
Emily Brandon

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You will be able to get by in retirement with a smaller nest egg if you eliminate as many expenses as possible before you leave the workforce, such as mortgage and credit card debt. While you're still working, you can also take care of many other expenses that are likely to crop up in retirement, including home repairs, and even taxes in some cases. Here are some expenses you should try to tackle before you retire.

A mortgage.

Finally paying off your monthly principal and interest payments eliminates a huge expense from your retirement budget. However, you will still have to pay for insurance, property taxes, and maintenance on your home. If those costs are high in your area, consider moving to a place with lower taxes or downsizing into a smaller house once your children move out.

Credit card debt.

You don't want to use your nest egg to pay for expenses you incurred while working. "I don't like credit card debt at any age. For folks after retirement, it just clobbers a person's finances," says Mark Ziety, a certified financial planner for Shakespeare Wealth Management in Brookfield, Wis. "It's always nice to enter retirement without any debt whatsoever." Aim to pay off your credit card balances, car loans, and other high-interest debt before you leave your job.

A second car.

Retired couples often find that they no longer each need their own car in retirement. Selling one of your vehicles brings in some immediate income and also eliminates ongoing insurance and maintenance costs. Once you curb your daily commute, you probably won't put as many miles on your existing car. "In retirement, you're probably not driving as much so you only need to replace a vehicle every 10 years," says Michael Miller, a certified financial planner for Miller Premier Investment Planning in Mansfield, Texas. "Buying a two-year-old vehicle versus a brand new one is something I suggest to everyone."

Home repairs.

Get as many home repairs taken care of as possible before you retire. Whether your house needs a new roof or you need a new washing machine, try to anticipate what will need to be fixed so you won't have to dip into your retirement savings to pay for it. "Taking out large withdrawals for extra expenses early in retirement is really detrimental to your retirement," says Ziety. "Getting those maintenance expenses taken care of before you retire is a great idea." Of course, if you plan to do some of the home repairs yourself, it might be a good idea to wait until you have more free time in retirement.

Expensive investments.

You generally don't have a lot of control over the investment choices--and the fees that come with them--within your 401(k). But when you retire, you can choose any financial institution that offers an IRA to house your nest egg. Try to pick investments with reasonable fees. "A 1 percent difference in fees and expenses can literally make the difference between a successful retirement and you running out of money before you run out of time," says Miller.

Unnecessary services and utilities.

Many households have redundant utilities. You may not need both a land line telephone and a cell phone. Also reevaluate whether you need both an Internet connection and cable TV, given that you can watch many shows for free over the Internet. "When you retire and have a little more time on your hands, you can reevaluate what you really need and what conveniences you don't really need right now," says Terry Siman, a certified financial planner and president of Vantage Point Advisors, Inc. in Lower Gwynedd, Pa.

Taxes.

You can't completely get out of paying taxes in retirement, but you have some control over when you pay them. You can pre-pay your taxes before retirement by investing within a Roth IRA or 401(k), or you can defer paying taxes until retirement using traditional retirement accounts. Investing in both types of tax-favored retirement accounts and taxable accounts gives you some flexibility to decide which accounts to tap (and how much resulting tax to pay) within a given year. Withdrawals from traditional retirement accounts become required after you reach age 70 1/2. "It's nice having that flexibility of multiple tax statuses," says Ziety. "Any time that there is an ability to look at tax-deferred, taxable, or tax-free investments, then you can really manipulate what your tax liability is in a given year."

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