One of the most important—and often most underestimated—steps in retirement planning is figuring out how much you’ll need to live on once you stop working. Without a clear understanding of your future living expenses, it’s difficult to determine how much you need to save, when you can retire, and how long your nest egg will last. Fortunately, with a thoughtful approach and a little guidance, you can make this process more manageable and empowering.
Here are practical tips to help you accurately calculate your retirement living expenses and prepare for a financially secure future.
1. Start With Your Current Income & Expenses
A good starting point is to take a close look at your current monthly take-home pay and spending. This review includes:
Housing (mortgage or rent, property taxes, maintenance, utilities)
Transportation (gas, insurance, maintenance, car payments)
Food (groceries, dining out)
Health care (insurance premiums, out-of-pocket costs, prescriptions)
Insurance (home, auto, life, long-term care)
Entertainment (travel, hobbies, subscriptions)
Gifts and donations (charity, family)
Miscellaneous (clothing, personal care, pet care)
Once you have a baseline, you can consider which expenses might increase, decrease, or disappear altogether in retirement.
For a quick approach to determining retirement income needs (for those still working), we often use this framework to help in building realistic estimates and setting expectations:
What is your current income (after taxes) available for spending each month (i.e., what hits your bank account)?
What are any debt payments that you do not expect to have in your retirement years (such as a mortgage)?
What amount are you currently saving from your take-home pay to savings or investment accounts?
What are any other expenses you pay now that you are not likely to have in retirement (e.g., childcare expenses, tuition)?
Subtracting items 2, 3, and 4 from item number 1 will get you very close to what you currently spend on day-to-day living. Assuming that number meets your needs, then it is probably an accurate figure to work with as a retirement spending target, at least for more routine spending.
If you want to get very detailed in your approach, document various categories of spending, and track them for greater awareness, you can utilize a budget app like EveryDollar or YNAB, or simply track them using a spreadsheet like our Budget Worksheet, which you can download here: Free Budget Worksheet Download.
Next, you will want to consider what adjustments may take place in this new season of life.
2. Adjust for Retirement Lifestyle Changes
Retirement often brings changes in how you spend your time and money. For example:
Housing costs might drop if you pay off your mortgage or downsize.
Work-related costs, such as commuting, clothing, and lunch expenses, may vanish.
Travel and leisure spending may increase, especially early in retirement.
Health care costs typically rise with age, even with Medicare coverage.
Visualizing your retirement lifestyle—how you’ll spend your days, where you’ll live, how often you’ll travel—can help you estimate these adjustments more accurately.
Accounting for these items can allow you to further fine-tune the timing and magnitude of additional spending above and beyond ordinary living expenses that you anticipate during your retirement years.
3. Consider Inflation’s Impact
Even modest inflation can significantly affect your expenses over a 20- to 30-year retirement. For instance, if inflation averages just 3% annually, today’s $50,000 budget will cost nearly $90,000 in 20 years.
Make sure to factor in inflation when projecting costs. Some expenses, like health care and education (if you’re helping grandchildren), tend to rise faster than others. Including an inflation buffer in your planning can help preserve your purchasing power.
4. Account for Health Care and Long-Term Care Costs
Medical expenses can be one of the largest costs in retirement. Even with Medicare, retirees are often responsible for premiums, deductibles, dental and vision care, and supplemental insurance. According to Fidelity, a 65-year-old retiring today would spend $165,000 on health care over the course of retirement.
Additionally, consider the potential cost of long-term care, whether at home or in a facility. It’s worth exploring options such as long-term care insurance, hybrid life insurance policies, or self-funding strategies.
5. Plan for One-Time or Occasional Expenses
Many retirees face irregular but significant costs, such as:
Replacing a vehicle every 8–10 years
Home repairs or renovations
Major travel (such as international trips or destination weddings)
Helping children or grandchildren with education or emergencies
Including a category for these occasional expenses can help avoid budget shortfalls or dipping into emergency reserves. Planning ahead can also help you evaluate the tax ramifications of large withdrawals from investment accounts and take steps to lower your overall tax burden.
6. Build a Retirement Spending Plan
Once you have your estimates, create a comprehensive spending plan organized into three tiers:
Core Living Expenses: These are the expenses you will always have to pay for, such as food, clothing, shelter, property taxes, and insurance—just to name a few. These costs would continue throughout your life expectancy.
Variable Expenses: This tier would include goals like travel and any extra spending that you expect to have, usually in the earlier years of your retirement, but may not continue past a certain age (e.g., 80). This is the category where you can dream a little and incorporate spending that you may not currently have but anticipate having once you are retired and have greater control over your time (such as travel and hobbies).
Legacy goals: This category includes gifting, charitable giving, and estate planning.
This structure allows for flexibility. If investment returns are strong, you may splurge more on travel. If markets are down, you may temporarily cut back on discretionary spending without compromising your core needs.
7. Review and Refine Your Plan Regularly
Life is unpredictable, and retirement can span decades. Review your expenses and income annually—or when major life events occur (e.g., a move, a health issue, a change in family circumstances). Adjusting your budget and projections helps keep your retirement plan aligned with reality.
8. Work With a Financial Advisor for Peace of Mind
Determining your retirement expenses is part math and part visioning. A fiduciary, fee-only financial advisor can help you clarify your goals, organize your finances, and build a retirement spending plan tailored to your lifestyle.
Advisors can help stress-test your plan, account for uncertainties, and align your investment and income strategies with your needs. Just as importantly, they can provide reassurance to help you retire with confidence, not concern.
Final Thought: Retirement should be about enjoying life, not worrying about whether your money will last. By carefully estimating your living expenses—and regularly revisiting your plan—you’ll be better prepared to navigate the road ahead with clarity.
Schedule a complimentary 30-minute discovery call with a fiduciary wealth advisor.