How to Calculate Living Expenses in Retirement
There are upsides to being a retiree – senior discounts when spending in retirement, subsidized healthcare, and regular Social Security checks. On the other hand, mature Americans must contend with worrisome issues such as a rising cost of living in retirement that includes rising healthcare costs in retirement.
Retirement Budget Planner
To calculate retirement expenses, begin by determining what your average monthly expenses in retirement might look like. When estimating retirement expenses, start by dividing the cost of living in retirement into two categories: those you believe will change and those you believe will remain largely the same.
Costs That Might Change
· Housing expenses – particularly if you plan to downsize to a smaller dwelling
· Average healthcare costs in retirement, including Medical insurance – which may shift from a premium for HMO coverage to a Medigap policy
· Costs for dependents – if you have children that may not be self-sufficient by the time you retire
· Entertainment and travel expenses – for some people, these might decline precipitously; for others, they might be far higher
· Taxes – most retirees find their tax burden is less than during their working years
· Automobile-related costs – retirees generally drive less than workers who commute to their jobs every day, thus spending less on maintenance, tolls, gasoline, etc.
· Monthly contributions toward retirement savings accounts – not only can you stop making this contribution, but you might even consider spending it!
Costs You Think Will Remain the Same
· Food–although your diet and menu may not change, you must consider the impact of inflation on your monthly grocery bill
· Clothing – unless you previously spent large amounts of money on uniforms or other job-specific wardrobe items
· Household expenses – such as telephone, utilities, cable, etc.
Determine Your Individual Needs
Once you analyze all this information and calculate your retirement expenses, you can begin to determine your average spending in retirement per month. You will also be able to better determine what your monthly income needs as well as how large of an emergency fund you should establish. This emergency fund should be held in a liquid form such as a money market account, which provides stability for your funds as well as ready access to them.
Consider reviewing your retirement budget at least annually, because circumstances can and do change in today’s fast-moving world.