What Will My Living Expenses in Retirement Be?

By Maurie Backman Markets Fool.com

One of the greatest challenges of saving for retirement is figuring out what your living expenses will look like. While you might struggle to come up with an exact number, you can do your best to estimate your major costs, like housing, healthcare, and transportation. Here, we'll review the key items that need to go into your retirement budget and introduce you to a calculator that can help you add up your anticipated costs.

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Healthcare

Healthcare is the one expense that almost universally goes up for seniors, and unfortunately, it tends to climb in a very big way. The latest estimates from HealthView Services tell us that the average healthy 65-year-old couple will spend $377,000 on medical expenses in retirement. And that's the number healthy couples are looking at. If you have a known medical issue, that number might climb. Of course, if you're lucky, you might get away with spending less, but use this number as a starting point when creating your retirement budget.

Image source: Getty Images.

Housing

Paying off your mortgage in time for retirement can help keep your housing costs down. But not everyone is able to enter retirement mortgage-free. In fact, an estimated 30% of seniors still owe money on their home loans.

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Even if you don't carry mortgage debt into retirement, you'll still have other housing costs to contend with. Property taxes and homeowners' insurance, for example, are a necessary part of homeownership, and while maintenance costs can vary, the average property owner spends 1% to 4% of his or her home's value per year on general upkeep.

Now if you're planning to rent a modest home in retirement, you may come to find that doing so is cheaper than owning. Either way, you'll need to put some thought into what your housing costs might look like down the line.

Transportation

It's estimated that the typical retiree spends $6,852 per year on transportation. But if you own a car, that number might climb. AAA reports that it costs $8,700 a year, on average, to own a vehicle, but if you're dealing with an older automobile, you may wind up sinking in extra money just to keep it running. Along these lines, don't be surprised if your car insurance rates climb as you age. According to Esurance, rates tend to increase for drivers 70 and older.

Miscellaneous costs

While healthcare, housing, and transportation represent some of the more significant costs you'll face as a senior, your remaining expenses can also add up. After all, you'll still need food, electricity, phone service, cable, and clothing once you stop working. Furthermore, you may come to find that your leisure spending increases during retirement, as you'll have more free time to fill.

This is why creating an accurate retirement budget is critical. But don't wait until you're actually retired to throw one together. Rather, your retirement budget is something you should think about and work on in advance -- and with that in mind, we have a calculator that can help. If you plug your various expenses into this handy tool, along with your current and expected income, you'll get a good sense of whether you'll be able to manage the senior lifestyle you're hoping for, or whether you'll need to cut corners.

* Calculator is for estimation purposes only, and is not financial planning or advice. As with any tool, it is only as accurate as the assumptions it makes and the data it has, and should not be relied on as a substitute for a financial advisor or a tax professional.

Of course, some of the numbers you input into this tool may represent nothing more than a guess, but you can still use them as a solid starting point for establishing your budget. Furthermore, seeing how far your retirement income will get you might serve as a wake-up call to either reset your expectations or ramp up your savings.

For example, if you see that your anticipated retirement income won't suffice in paying your expenses, you can look at the non-essential categories on this list and cut corners there. These include:

  • Entertainment and dining
  • Recreation and travel
  • Hobbies

If you don't want to compromise on lifestyle, your only other option is to save more, which may require working a few years longer than anticipated. But if you are willing to put in a little more time on the job, it could pay off tremendously. Currently, workers 50 and over can contribute up to $6,500 a year to an IRA and $24,000 a year to a 401(k). Max out the latter option for three more years, and you'll have an extra $72,000 to work with in retirement.

Enjoying retirement is often a matter of making choices. Chances are, you won't have unlimited funds, so you'll need to decide what lifestyle aspects are most important to you, and which luxuries you're willing to forego. The sooner you start planning and saving for retirement, the less compromising you'll need to do in the future.

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