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Determining Your Retirement Expenses

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Determining Your Retirement Expenses

Last week, I detailed my necessary expenses. These are expenses that I need to cover to live and protect my income. There's always a little fluidity to these because while transportation is a necessity for some, a new Acura isn't. Even recognizing that fluidity, it was extremely worthwhile putting it all down on paper (yes, virtual paper counts!). Here's a reminder of what I came up with (and if the prices seem odd, you may need to click on the original article to see why some may appear much less than what you have to pay):

  • Housing: $1500
  • Transportation: $200
  • Groceries: $150
  • Internet: $25
  • Gas and Electricity: $75
  • Water: $20
  • Cell Phone: $25
  • Home Phone: $3
  • Dog Care: $50

What I didn't mention at the time was that I planned to take it one step further. When I read Can I Retire? by Mike Piper, he made a great point that I hadn't thought of: My expenses in retirement won't be the same as they now. For example, though we rent now, we are on pace to own three properties outright before we reach retirement age. So when planning for retirement, factoring the money we spend on housing now doesn't make sense. (Note: Of course, we'll still have to account for taxes and maintenance.) If we were saving money for our kids college fund, that would presumably be an expense that we don't need to include either.

With that in mind, I thought it was worth taking out a crystal ball and attempting to predict how some of the costs may change in 30 years. In many ways this is a fool's errand, I'm not going to get it right and something so far in the future is nearly impossible to guess. For example, would my parents have been able to fathom paying $3 for their home phone service with no long distance charges as I do with Ooma? I can't imagine so.

With that in mind, here is a wacky stab at what my necessary expenses may be: (I'm using today's dollars for simplicity - trying to factor in inflation will only make the prediction more murky.)

  • Housing: $400 - This may not be the most accurate number. I could probably be more accurate with this, but I don't currently have access to the paperwork or files.
  • Transportation: $300 - My transportation costs now are pretty low. I expect fuel prices to continue rise, even more than typical inflation. However, at the same time, I predict we'll be more efficient in creating transportation vehicles in general. The big question will be how much travel will we do when we retire. That seems to be something that depends greatly on our finances at that point. Travel will be more for entertainment than necessity.
  • Groceries: $300 - Life fuel prices, I expect food prices to rise in the future. Perhaps I'll have time to take up extreme couponing, but I'd rather not count on that.
  • Internet: $10 - I'm going to predict that internet access is everywhere in 30 years... and in many places I expect it to be free. A few years back there was a prediction that cities would have it for free, but that's died down. In 30 years, I could see that pick back up.
  • Gas and Electricity: $300 - We won't likely be living in northern California, our heating and air conditioning bills will rise in New England
  • Water: $40 - Let's factor in water becoming a rare resource in 2040. On the other hand, advances in desalination, could help stem the costs
  • Cell Phone: $100 - I expect that people will pay more for mobile communications (which I'm throwing under the "cell phone" tab here). I figure you'll be able to do more, and hence they'll charge more.
  • Home Phone: $3 - If these still exist...
  • Dog Care: $100 - Let's expect Fido to cost more money.

Total it all up and it comes to $1553 a month in necessary expenses. That doesn't factor in any extras or fun, but it's a start at knowing how much things will cost.

How are your costs expected to change in retirement? Let me know in the comments.

Last updated on December 14, 2011.

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8 Responses to “Determining Your Retirement Expenses”

  1. I’d suggest that property taxes and maintenance on those three properties is a substantial enough expense to include in your estimate.

  2. mod20guy says:

    Geez…thats a cheap water bill…I paid more in 1 quarter than you plan to pay in a whole year.

    • Lazy Man says:

      Kosmo,

      That’s was a clerical error – even earlier in the article I mentioned these expenses. Bad Lazy!

      Mod20guy,

      We don’t have a lawn, kids, and since I work from home, can extend the time between showers a little bit ;-).

  3. robyn says:

    biggest expense i face: insurance. auto, health, property. no union to get me retirement health insurance, not even as a medicare supplement. property insurance, add in flood/hurricane/earthquake depending on where you live. not sure if you included auto insurance in transportation, but i doubt it. matter of fact, i doubt you included car maintenance. at 300/month, that’s only 600 miles a month, using the IRS 50cents/mile [gas, maintenance] rate. if these are household costs, your utility costs are understated. when i lived in nyc 12 years ago, very well insulated 1200 sq ft 2 story home, my gas and electric [new gas hot water and heating system, thank you brooklyn union gas for rebating that!] bills averaged $300/month. so i think you have to kick that up a bit. will you have local taxes, either garbage/sewer related or income? you also need to allow for plain ole living expenses: the occasional new socks and underwear, a bar of soap or two, perhaps a newspaper or book or kindle download. [pause] even if you work at home you need to bathe and brush your teeth. i spend about $50/year on toothbrushes but i’m obsessive that way.

    • Lazy Man says:

      Good call on the health insurance. That’s going to be a big expense that isn’t factored in. Though my wife and I will have the military retiree insurance, so we are much more fortunate than most.

      The costs are not household costs, but fit under the same restrictions as the necessary expenses that I made previously. Specifically, it is my half of the expenses. I use this as a measuring stick to help insure that my side of retirement is covered. Barring unforeseen circumstances, my wife will have a military pension for her half which would be guaranteed, inflation-adjusted, and very predictable. I have a good confidence on her side of things because there are fewer variables. When she has 20 years of service (eligible for retirement) we can look at things and see where we are and if she has to work a few more years, at age 44, I don’t think it will be asking too much… as long as I’m pulling my weight.

      Robyn, you might be right that some of the costs aren’t exactly accurate. However, for an example, I drove about 300 miles last month. In retirement, I don’t know if I’d drive more or less. I might drive less because of whatever virtual reality technology is around 30 years from now ;-). I may drive more because I’ll have time to see more of the world. I predict that my frugal nature could make the IRS 50 cents/mile look like a poor estimation.

      There’s a good point about the garbage. That’s included in our rent now and I’m not sure what it is in the place we plan to retire. The sewer costs get put into the water expense bucket – its the same bill. Health and beauty (soap, toothbrushes, etc) can come out of the grocery bucket. Right now, my dentist gives me a new toothbrush every 6 months, so that’s not a cost. I use an electric one, but that’s not “necessary.” Newspapers, book, kindle downloads, Netflix is all not in the “necessary” category.

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  5. Kate Clifford says:

    Great post! It is really great to know what are your retirement expenses so that you would not end up spending all of your money in whatever your expenses are.

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