How to Estimate Your Retirement Expenses

Retirement is almost as inevitable as death and taxes. Even if you love your career, someday you’ll almost certainly retire – or take on a form of semi-retirement.

This is why estimating your retirement expenses is so important. Understanding what you can live on when you’re retired can mean the difference between retiring too early and being broke – and retiring at an ideal time and being financially stable. But knowing you need to estimate your retirement expenses and knowing how to do it are two different things entirely. There’s no one right way to calculate how much money you’re going to spend during your retirement, but as you crunch those numbers, you’ll want to keep several strategies in mind.

Estimate high. Along with what expenses you think you’ll need to spend, you’ll be better off trying to save enough so that there isn’t a major difference in your spending when you go from working to retirement, says Tom Chandler, a financial advisor with Ameriprise Financial in Roseville, California. In other words, don’t plan on spending far less than you do now.

Chandler, who has been doing this for over 25 years, says, “I can tell you emphatically that most people I come across hate to budget their expenses.”

So Chandler suggests taking your current take-home pay and deducting expenses that you aren’t likely to pay during your retirement. For instance, if you have a mortgage payment now but you won’t during retirement, remove that from your list of expenses. Maybe you also pay to park your car at work? And you commute every day, and so your car’s gas expenses will be lower? Get rid of those.

Whatever bills and expenses are left over is a ballpark figure on your monthly expenses during retirement, unless you plan on downsizing considerably.

“I’ve found most people want to maintain their same standard of living, and this gives them a quick way to estimate what they might need for spending,” Chandler says.

He adds, “Of course, to be more accurate, you will have to prepare a budget.” But he suggests being brutally honest and planning a budget that isn’t sparse, but is one that includes what you’re likely going to actually spend.

So if you love your daily iced coffee or football season tickets, put those in your budget. If you plan on traveling or taking up a new hobby, you’ll want to include those projections as well. If you have to take them out later, then you have to take them out.

About the Author

stephen-kelley
How can you know what you should do if you don’t know what you can do? Author, radio personality, educator and financial planning pioneer Stephen Kelley shares his secrets to More Now, More Later™ retirement income planning. Most planners regard income planning as a “zero‐sum game,” a “Rob Peter to pay Paul” exercise. In these self‐serving, Wall Street‐dictated scenarios, people must limit the amount of income they receive to ensure they don’t run out of money in retirement. But there is an alternative to this “less now, more later,” or “more now, less later” mentality. Using state‐of‐the‐art income planning techniques, and his own trademarked “Last Things First™” planning process, Stephen Kelley blows the lid off the traditional Wall Street‐serving methods and brings retirement planning home to the individual retiree. In his books you will learn how to: - Unleash as much as 3 times the lifetime income using half the money with Kelley’s trademarked planning process, Last Things First™ - Ensure your Social Security benefits enhance, rather than impede, your plan. - Reduce, or even remove, taxes and fees from your retirement plan. - Maximize market returns while minimizing market risk. - Regain control of your pension so you not only get all the income you can, but so you can also leave it to your heirs. - Take control of the planning process so you can spend freely without worry. - Much, much more.

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