SmartMoney Blogs

A blog about living in and planning for retirement

3 Simple Steps for Calculating Retirement Costs


How much savings will I need to retire? That’s the $64,000 question these days, and to be quite frank, there isn’t an exact answer. But there are some ways to figure out your expenses during retirement that will get you closer.

While nearly 50% of Americans 45 and older said that dealing with daily expenses was their most pressing financial retirement worry, according to a retirement survey from Hartford Financial Services Group, many struggle to estimate what those costs will actually be, experts say. “You can’t project retirement expenses perfectly,” says Carrie Schwab-Pomerantz, CFP, the chief strategist of consumer education for Charles Schwab. You can, however, make a decent estimate, she says. Here are her three tips for figuring out those costs.

Determine which expenses will increase and decrease. For most people, costs like commuting/gas, clothing, retirement savings and eating out will likely decrease somewhat, while costs for travel, entertainment/hobbies and possibly philanthropy will increase somewhat, she says. But “health care is the biggest variable in retirement planning,” she adds. In fact, a study by the Employee Benefit Research Institute finds that the average couple (both age 65 today) with average life expectancy could need $295,000 to cover premiums for health insurance coverage and out-of-pocket expenses during retirement — more if they live longer than average of have higher-than-average drug use. Click here for more details on how to plan for health care costs.

Decide on the lifestyle you want to live. Do you plan on living it up in retirement or do you plan on downsizing and relaxing?  The answer to this question plays a big role in how much you’ll want to save. Schwab-Pomerantz says that those who want to live it up — say, by traveling a lot or buying a second home — should plan to spend 100% to 125% of their current income in retirement.  For those who just plan to maintain their lifestyle, planning to spend 80 – 100% should do the trick, and for those who plan to significantly downsize, 60 – 80% might be OK (though, she warns, that saving this little can be risky because “a lot can change over 30 years”).

Prepare a detailed budget. As you near retirement, it becomes increasingly important to prepare a detailed budget, she says.  Use this worksheet to help you make a retirement budget. Schwab-Pomerantz adds that it is important to break your expenses into two buckets — essentials (like food, health care and rent) and discretionary (like travel and entertainment) so that you can at least make sure you have all the essentials covered.  She also recommends that you have a two years worth of income in cash, as opposed to investments, just to be safe.

Also, check out Schwab’s Retirement Planner for more information on how much you’ll need to save for retirement.


We welcome thoughtful comments from readers. Please comply with our guidelines. Our blogs do not require the use of your real name.

Comments (3 of 3)

View all Comments »
    • so, punishment for a crime suhlod be meted out considering the race of the criminal?Um, seems to me this is a step backwards toward whatever race is out of favor at the time can sustain higher penalties for the same crime.Are we all equal before the law or are some more equal than others?And what will be the consequences of releasing more criminals into the general population?No wonder Obama wants our guns, life for criminals would be safer.

    • Very helpful article. I am 43 and wants to travel a lot in retirement. I allready have a second Home, but Will use 100% of current income as a goal. I Will not need to travel after 80. So after that 70% sh
      ould be enough.

    • In time of recession, A Homebased JOB helped my family.

      You should try it too.

      Lots of Jobs are available. You can work parttime or fulltime.

      VISIT: http://t.co/pwTvhNv

About Encore

  • Encore examines the changing nature of retirement, from new rules and guidelines for financial security to the shifting identities and priorities of today’s retirees. The blog also explores news that affects retirement, from the Wall Street Journal Digital Network and around the web. Lead bloggers are reporter Catey Hill and senior editor Jeremy Olshan. Other contributors include The Wall Street Journal’s retirement columnists Glenn Ruffenach and Anne Tergesen; the Director for the Center for Retirement Research at Boston College, Alicia Munnell; and the Director of Research for Pinnacle Advisory Group, Michael Kitces, CFP.