Realistically Determining how much You’ll Spend in Retirement

Retirement is that magical time that most people count on for most of their life. It is hoped to be a time when money is easy and work is optional. Unfortunately, for too many people today, the exact opposite tends to be the reverse.

Many retirees end their working years by going back to work to make ends meet. If they don’t work formally, they take on little side jobs like being a handy man or repairing lawnmowers. They have a dependable steady income, but it is too little money and too much month. How can we realistically determine how much retirement income is enough?

Start off by deciding what type of housing you will need in retirement. If your home is paid for, you may choose to start your retirement staying put. If it’s not paid for, you have to add that mortgage into your monthly income needs.

Selling the house might be an option if it is a large house with a lot of equity. You may be able to sell it and move into smaller quarters without a mortgage. This saves on both ends. No house payment and lower utilities and upkeep. You still have to pay real estate and property taxes. Figure these into your budget. If you have significant interest income and pensions, you may need to keep paying income taxes.

Food, clothing, auto expenses, insurance, and travel need to be incorporated into your retirement budget. You may have holiday and birthday presents to buy. Health care costs can be a hidden elephant here. If you retire before you qualify for Medicare, this cost can be quite large. Find out about the costs well ahead of time for your age and current health conditions.

Even with Medicare, you will need a supplement to fill in the gaps in Medicare coverage. Whether you go with a Medigap policy or an HMO type policy will depend on your health needs. HMO coverage tends to be better for younger healthier people. Medigap costs more but has much better overall coverage if you anticipate hospitalization or long-term rehab in a nursing home.

You will need some entertainment built into the budget. Your personal taste here will make large differences in the amounts needed. Benevolence and church giving may need to be considered also.

Figuring your retirement budget ahead of time can save a lot of grief if you retire without it. Many find that what they thought sounded like a nice monthly income was seriously inadequate because they did not accurately estimate their expenses. You may want to talk with other retirees in your area to get a feel for what their needs are in you community.