assert that there’s little evidence to support this claim. Still others have suggested that when you retire, you won’t need less income; you’ll need more. Who’s right? Like everything about retirement, it depends on who you are and whom you ask. But, instead of relying on some arbitrary one-size-fits-all number, a better approach is to estimate how much you might need in retirement. Find out how by following these ten easy steps: 1. Keep track of every penny you spend. It’s very difficult to estimate what you’ll spend in retirement if you don’t know what you’re spending now. 2. Do this for three months, by writing down all of your expenses on a small notepad. Include expenses for everything, down to the last penny: the cost of your morning latté; the money you put in the parking meter; expenses for gifts, donations, and lunches; even money you lose in the washer. 3. Keep track as you go. It’s easier to write down now what you spent for lunch today than to remember it a week from now. 4. Categorize these monthly expenses on a computer spreadsheet, or a piece of paper, into various categories that make sense to you (e.g., household expenses, entertainment, clothing, etc.). 5. Don’t forget to include your fixed expenses (e.g., mortgage payments, rent, taxes, insurance, debt service, etc.). 6. After three months, analyze this data and calculate an estimate of your post-retirement expenses. 7. First, eliminate all of the items that you won’t have in retirement (e.g., lunches out, commuting expenses, union or professional dues, etc.). 8. Next, adjust downward, by some reasonable percentage, all of your expenses that will be reduced in retirement (e.g., clothing, dry cleaning, Social Security and Medicare taxes, federal and state taxes, retirement savings, etc.). 9. Then, add back, for each month, any expenses that you might have (or that will increase) in retirement that you didn't have when you worked (e.g., health insurance premiums and travel expenses). 10. Finally, tally all these expenses up and divide the total by three. The result should give you an idea of what you might spend in retirement. Once you've done this, then you can work on developing an income stream to meet your monthly retirement expenses.
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| How Much Will You Spend In Retirement? By Jonathan D. Edelfelt |
