August 30, 2021

Retirement Expense Calculator

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How much will your golden years cost? Use this quick calculator to find your retirement expenses and review the checklist to get yourself prepped.

Retirement Expense Calculator

After many years of hard work, it's finally time to relax!

But before you kick back, you'll want to ensure your finances are in order. Are you sure you can afford the lifestyle you want?

With this calculator, get an estimate of bills and expenses you'll have to pay in retirement. Find out how it works below.

How do you calculate your retirement expenses?

It's pretty quick and easy to figure out if you're saving up enough to cover the lifestyle you want. Here's what you need to add up:

Housing

  • Mortgage
  • Property taxes
  • Homeowner's insurance
  • Rent
  • Utilities
  • Maintenance/fees
  • Home improvements

Food & transportation

  • Groceries
  • Dining out
  • Vehicle maintenance
  • Fuel
  • Auto Insurance
  • Public transportation

Healthcare

  • Medical
  • Medications and supplies
  • Health insurance

Personal insurance

  • Life insurance
  • Disability insurance
  • Long-term care insurance
  • Other insurance

Family care

  • Clothing
  • Products and services
  • Alimony
  • Childcare

Others

  • Loan/credit cards
  • Entertainment
  • Travel/vacation
  • Hobbies
  • Gifts
  • Education
  • Charitable contributions
  • Wedding
  • Other

Once you have that number, see if your retirement savings can afford that lifestyle.

This interactive tool can also tell you if you're saving enough to accommodate your post-retirement lifestyle.

What is a reasonable retirement budget?

A general rule of thumb is that your retirement expenses will be 70% - 80% of what they were pre-retirement. For example, if you spent $2,000 per month before retirement, you can expect to spend $1,400 - $1,600 per month after retirement.

Most people spend less during retirement than they did before retirement. For example, you might be spending less on gas since you're not commuting or not spending as much on adult children.

However, this may not be true for everyone. Carefully tally up your monthly expenses and be sure that you're saving up to live the lifestyle that you want.

Dedicated budgeting tools are great for keeping track of your spending and saving during retirement. Check out our comprehensive list of budgeting apps and sites to get started.

How much money do I need per month in retirement?

For a number that's specific to your life and expenses, utilize the calculator above to find out how much you'll need per month.

If you want to follow the common $1,000-per-month expenses rule, here's how it works:

For every $1,000 you want to spend in retirement, you need at least $240,000 saved. That way, each year, you can withdraw 5% of $240,000. That gives you $12,000 to spend per year.

Average Retirement Savings
  • The average household with retirement savings has $60,000 saved.
  • The average 401(k) balance is $97,700.
  • The average IRA balance is $100,200.
  • 47% plan to rely on Social Security as their primary retirement income.
  • The average Social Security benefit for retired workers is $1,461/month.
  • Nearly 40 million working-age households (45%) do not have any retirement savings.

How long will my money last using the 4% rule?

The 4% rule says that, if you invest 60/40 in stocks and bonds, you can safely spend 4% of your nest egg each year. At this rate, your money should last roughly 30 years.

Here's how it works:

  1. Invest roughly 60% of your money in stocks and the rest in bonds.

  2. Figure out how much you need for basic expenses, like housing and food.

  3. Make sure you can cover these expenses with guaranteed income, such as Social Security, bond ladders or an annuity.

  4. During retirement, withdraw 4% out of your savings the first year.

  5. With each successive year, take out that same dollar amount plus an inflation adjustment.

The 4% rule remains a safe withdrawal rate even during the worst market downturns. This strategy was based on research by William Bergen. He tested his theory across different recessions, even the Great Depression, and discovered 4% was a safe withdrawal rate.[1]

The 4% rule can help your money last even longer than 30 years of retirement. Since you don't have to sell stocks during markets, your savings can last for the long haul.

What about inflation?
The Consumer Price Index (CPI) is a common measure of inflation. From 1925 to 2020, the long-term inflation rate averaged 2.9% annually. For 2020, the U.S. The Bureau of Labor Statistics reported the CPI as 1.2%. This rate will affect your distribution's purchasing power.

Tips on saving for a comfortable retirement

There's no hard and fast rule on how to retire. But there are a few catch-all money best practices that get you on the right track.

These money moves can set you up for success:

  1. Track your spending needs - You can use a free tool from Personal Capital to check your expense history and forecast if you're able to afford that lifestyle in the future.

  2. Take advantage of tax benefits with Roth IRA - Your withdrawals are tax-free after you turn 59 ½. And as you contribute during your working years, your earnings are tax-free.

  3. Earn passive income with real estate - Real estate is one of the safer long-term investment options. But getting into the market is expensive. The cost of traditional real estate is out of reach for most investors. You can invest with Fundrise with just $10. Since it's a long-term stable investment, you'll need to invest for 5+ years before getting substantial returns.

  4. Reach investment goals - You can choose conservative investment vehicles like CDs and high yield savings accounts or riskier but huge growth potential options like stocks. Ally Invest offers all of these options.

  5. Protect your assets - Lastly, you want to make sure your money is going towards the right place. When you create a will, you're deciding who gets your property and hard-earned savings if you're no longer here. It's also an important way to name a legal guardian if you have any children.

Bottom line

The average American only saves $172,000 for retirement. This number won't go very far with the increased cost of living and life expectancy.

In fact, the average retiree spends an average of $45,756 per year. It's important to use this calculator to figure out how much you're spending. This includes deciding between wants vs necessities.

Once you have a baseline, you can figure out how much you need to save and if you need to curb your spending.

References

Amber Kong is a content and creative at CreditDonkey, a personal finance comparison and reviews website. Write to Amber Kong at amber.kong@creditdonkey.com. Follow us on Twitter and Facebook for our latest posts.

Note: This website is made possible through financial relationships with some of the products and services mentioned on this site. We may receive compensation if you shop through links in our content. You do not have to use our links, but you help support CreditDonkey if you do.

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