Forecasting Your Expenses

For most of us spending money and buying stuff is fun.  It's the great American pastime.  Paying bills and deciding what not to buy, what we cannot afford is not fun--but very necessary, especially in retirement.  Preparing a budget is an essential step in determining if you will have enough money in retirement.

But before we get to some suggestions on how to develop a budget, let's look at the big picture.  Experts believe that most of us will spend less money in retirement than when we were working--50 % of gross pay or about 70% of take-home pay is a common rule-of-thumb.  Many work-related expenses are eliminated, such as commuting costs and business clothing, for example.  And your taxes will also be lower.  Earned income is subject to a 6.2% Social Security tax (up to $102,000 per year) and a 1.45% Medicare tax, all deducted from your paycheck whereas there is no such tax on withdrawals from savings.  As a result you may even drop to a lower income tax bracket and save money on taxes.  In addition, many discounts are available to senior citizens for transportation, movies and cultural events, educational programs, drugs, travel and other items.  Membership in an organization like the Baby Boomers' Retirement Club (BBRC) can give you access to even more discounts.  Another expense which can be reduced or even eliminated in retirement is life insurance. 

On the other hand, some expenses like medical insurance and medical expenses will be higher in retirement.  Also, many retirees find they spend more just because they have more time.  "When I had a job, I spent so much time working, I didn't have time to spend money," recalls one new retiree.  Now with lots of free time on his hands, he has more time to shop and ends up spending more.  It takes discipline to avoid this kind of spending trap.

To prepare a retirement expense budget, begin with your current expenses.  If you don’t have a good handle on this, here's a list of common expenses most of us have: [how about a link to a calculator/spreadsheet here? ]

                                                                        Today                        In Retirement
Monthly Expenses

Housing:
            Mortgage or rent
            Property taxes
            Utilities
            Home insurance
            Telephone
            TV/Internet service
            Repairs and maintenance
            Outside maintenance
            Furniture and furnishings
            Domestic help, household upkeep

Food:
            Food prepared at home
            Meals out

Clothing:
            Clothing
            Laundry/dry cleaning

Transportation:
            Auto payment
            Gas, oil and maintenance
            Auto insurance
            Other vehicle (boat, etc)
            Train/bus travel

Medical Care:
            Health Insurance/Medicare
            Medicare supplement
            Expenses not reimbursed
               by insurance
            Prescription drugs
            Dental care

Other Insurance:
            Life Insurance

Personal care:
            Beauty salon
            Haircuts
            Cosmetics/sundries

Entertainment:
            Movies, theatre, music
            Club memberships
            Sports equipment
            Hobbies

Other:           
            Vacation and travel
            Education expenses
            Newspapers, magazines, books
            Gifts and contributions
            Installment loans
            Pet care
            Miscellaneous

                        Total Monthly Expenses

                        Total Annual Expenses