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Estimating Your Retirement Expenses

Estimating Your Retirement Expenses

 

          While many people look forward to retirement as a time for themselves, their families, hobbies, travel or even more education, it can also be a stressful time when it comes to finances.  “Will I have enough income?’ is a frequent question and concern.  A first step in developing a plan for financing your retirement is to estimate your retirement expenses.

          How much money will you need to support the retirement lifestyle you picture? Give some thought to your retirement goals.  Does it include staying in your family home? Purchasing a retirement home? Travel? Support to your children and other family members? Once you have a general idea of the lifestyle you may lead, you can start to estimate how much that lifestyle will cost.

          Most retirees desire a level of living after retirement similar to that before retirement. Many expenses stay roughly the same in retirement.

However, most retirees notice that some expenses decrease after retirement, while others increase. These patterns vary from person to person, but do follow some general trends.

          Expenses that may decrease include:

          • Work-related costs — commuting, parking, lunches, professional dues or subscriptions, business clothing, dry cleaning

          • Income taxes

          • Home maintenance costs for tasks you will now do yourself instead of hiring done

          • Housing costs if you move to a smaller home

          Expenses that may increase include:

          • Recreational and social activities

          • Travel

          • Health insurance

          • Health care and prescriptions

          Because retirement may encompass a 20- to 30-year period, your lifestyle and expenses will likely change during retirement.  Many retirees go through an active phase in early retirement that includes extensive travel and recreational activity. Near the end of life, high costs for healthcare or nursing home care are possible. It may be helpful to project costs separately for different phases of retirement. These projections cannot be precise, but they help insure that your expense estimates allow for the possibility of change. For example, changes in health could affect lifestyle and expenses, so you may plan cautiously and allow for the high cost of nursing home care in the later stage of retirement. Even though it is not precise, this estimate based on your best judgments is an important first step in financial planning for retirement.

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