Should You Keep Your Costco Executive Membership if You're Retiring?

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It's not uncommon for people to see their income drop once they retire. At that stage of life, you're no longer earning a paycheck and are likely living on a combination of Social Security and, if you're lucky, withdrawals from an IRA or 401(k). So you may be eager to conserve funds as much as possible.

One of the things it pays to do as a near- or new retiree is a thorough assessment of your spending to see where there's room to save money. You may, for example, decide to stop paying for a streaming service you don't use often.

Another spending category you might look to reduce is Costco . While keeping Costco access is often crucial for retirees, since the warehouse club giant is known for its low prices, you may decide that it's time to downgrade from an Executive membership to a basic one. Doing so will save you $65 per year once Costco's planned fee hike takes effect on Sept. 1.

But while you might think that getting rid of your Executive membership is the smart thing to do, you might end up losing money in the process. Before you downgrade, think about how much you're likely to spend at Costco and whether giving up the Executive membership makes sense.

Costco math

Beginning Sept. 1, an Executive membership at Costco will cost $130 annually, compared to just $65 for a basic one. Now, as you probably know, the Executive membership gives you the benefit of 2% cash back on your purchases. But given the higher cost, it'll take $3,250 in annual Costco spending to break even on an Executive membership.

Even if you're retired, there's no reason to immediately assume you won't spend more than $3,250 a year at Costco. If it remains a go-to source for various grocery items and household essentials, then you might easily rack up a $3,250 tab or more during the year if you shop there regularly.

Let's say you go to Costco 24 times a year and spend $150 each visit. That's $3,600 in annual spending, which would put $72 back in your pocket with an Executive membership. When you subtract the cost of the upgrade, or $65, you're still ahead $7. And while an extra $7 isn't going to make or break your retirement, you might as well pocket it.

Plus, as a retiree, you may be doing more travel than you did when you were working. If you book vacations through Costco, those trips are eligible for cash back with your Executive membership. You might conceivably spend several thousand dollars on travel alone.

The big picture

Some people are quick to assume that Costco's basic membership makes more financial sense than the Executive one because of its lower price. But whether you're retiring or not, it's important to look at the big picture and figure out how likely you are to make back your upgrade cost and then some.

Even if an Executive membership only puts an extra $1 in your pocket after accounting for the additional $65 it costs, that's $1 you didn't have before.

And here's another lesser-known Executive membership rule: You can downgrade your membership at any time, and Costco will refund you the difference if you haven't made your upgrade fee back.

For example, say you keep or upgrade to the Executive membership and only earn $55 in cash back after a year. At that point, you can downgrade your membership to a basic one, and Costco will refund you the $10 you didn't make back through your spending during the year.

So all told, the Executive membership is a no-risk proposition. And it could end up rewarding you financially.

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