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Managing Retirement Spending

Managing Retirement Spending

Managing Retirement Spending

Retirement is meant to be enjoyed, but debt and expenses can make living comfortably difficult on a fixed income. One of the most beneficial financial decisions a senior can make is to manage their spending and have an in-depth understanding of where their money is going. Medical expenses, loans, and other forms of debt all have a major impact on the way an individual lives in retirement. Location plays a significant role as well and affects how a retiree manages their spending. Charting a course for financial security by managing spending can positively impact the way an individual navigates their later years. 

First and foremost, an individual should consider when and where to retire. When living on a fixed income, states with higher taxes and expensive costs of living may be less appealing than a state with lower taxes and affordable living costs. Considering that medical expenses account for the largest expense for a retired senior, living in states with affordable Medicare and Medicaid may ease some of the financial burden. While medical costs can cripple retirement savings, it is also important to take note of which states tax certain benefits like Social Security. Currently, there are 13 states that tax Social Security benefits as income: 

Colorado  Connecticut  Kansas Minnesota Missouri
Montana Nebraska New Mexico North Dakota Rhode Island
Utah Vermont West Virginia


Source: Investopedia.com

Other states, like Pennsylvania, that do not tax Social Security as a benefit – initially – may impose taxes if the recipient continues to work, or if their income as a whole exceeds a certain threshold. Luckily, there are thirty-seven states that do not tax Social Security benefits, allowing seniors to save more each month. Furthermore, there are several states that do not impose state income tax, which would certainly benefit seniors in their retirement. By 2025 there will be nine states that do not impose state income tax, but until then, Tennessee and New Hampshire will continue to tax wages. Those states are as follows: 

Alaska Florida New Hampshire*
Nevada South Dakota Texas
Tennessee* Washington  Wyoming


Source: Investopedia.com

All of the states that do not have a state income tax do not tax Social Security benefits. By relieving tax burdens, an individual can maintain more of their retirement income. This ultimately allows a retiree to maximize their retirement and live more comfortably than they would in a state that has high taxes and an expensive cost of living. Certainly, states that have lower taxes tend to make up for the lack of revenue in other areas such as property taxes or sales taxes, so each case is unique in how a retiree can truly take advantage of their later years. 

Further analyzing tax-friendly states, a number of states have a sales tax rate of 0% on most items. In some of the states that have a statewide 0% sales tax, they impose excise taxes on certain goods. In the long run however, less taxes mean more money in the consumer’s pocket, and for seniors on a fixed income this is extremely beneficial. The five states that have a 0% sales tax are: 

Alaska Delaware Montana
New Hampshire Oregon


Source: Investopedia.com

There are other taxes to be considered when choosing a location to retire but developing a plan that manages expenses and outlines retirement spending requirements will help maintain control of a retiree’s finances. This includes paying off debts and budgeting for recurring and discretionary expenses. Since seniors rely on a fixed income, racking up large amounts of debt and not having a spending plan that fits their particular needs can sever their retirement savings and erode their nest egg. Additionally, consolidating debt may have significant benefits for seniors. If the possibility is there to collapse multiple sources of debt into one fixed payment, they have the benefit of having one lender, with one rate of interest; rather than multiple payments, to multiple lenders, at variable rates of interest. 


For those who are nearing retirement or thinking about retirement, one way to get one step ahead of future expenses is to save. While saving is different for each person, even allocating a little bit can go a long way in easing the burden of future retirement expenses. Managing how money gets spent before retirement can also lead to good spending habits when retirement is reached. 


While these are only a few instances of how someone can manage their spending in retirement, they will go a long way to maximizing retirement. Figuring out where the best place to retire is only the beginning. Living in a tax-friendly state increases the amount of money available to be used for other recurring or discretionary expenses like medical, loans, or other forms of debt. Creating a payment plan will go one step further to ensure that expenses are accounted for and taken care of in a timely and financially efficient way. Finally, saving as much as possible helps solidify a senior’s retirement nest egg to take care of them as they age. In doing so, a retired individual can save more of the hard-earned income that they deserve and retire peacefully. 

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