Guide to Estimating Your Retirement Expenses

Calculating your retirement expenses is one of the most important parts of the retirement planning process. In order to determine how much money you will need to have when you retire, you need to know what your expenses are going to be. Here are the basics of how to estimate your retirement expenses effectively.

Living Arrangements

The first thing that you need to estimate is the costs that will be associated with your living arrangements. Many retirees plan on moving somewhere else when they retire. If you are planning on moving to a tropical destination and purchasing a condo, you need to know approximately how much that is going to cost you. Get online and do some research about real estate prices in the area that you plan on moving to. If you are going to rent a place, you need to get an estimation of what market rent will be. Do not forget to calculate in other expenses besides just the mortgage payment. For example, you will have to pay some type of real estate taxes and insurance on the property. Try to be as accurate as possible when estimating these costs because they will likely be your biggest monthly expense.


Many retirees also spend a large portion of their budget on travel expenses. If you plan on traveling quite a bit when you retire, you will want to try to budget something for this cost. Consider where you will be traveling frequently and how much this is going to cost you. For example, if you are going to drive to a vacation house that is four hours away from your house, calculate how much you will be spending on gas to get there. If you are going to be flying somewhere, you should come up with a figure for airline tickets. Think of everything that you will need when traveling and then budget for this.


You will also need to come up with a figure for how much you plan on spending on food and groceries. If you are the type of person who likes to cook, be sure to budget a healthy amount for this. If you like to go out to eat frequently, you might be able to lower the grocery budget a bit and add something for eating out.


Many retirees also have to deal with sizable medical expenses. If you already are dealing with a medical condition, you need to continue budgeting something for the maintenance of that. Budget something for regular medical checkups as well.


Even though you will not be working anymore, that does not mean that you are going to be able to get out of paying taxes. Unless you have a Roth IRA or Roth 401(k) paying your retirement expenses, you will still have to pay income tax. Calculate what tax bracket you are going to be in and then figure can approximate dollar amount that you will have to pay in taxes each year.

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