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.