Getting Ready to Retire: Estimate Expenses
Once you have a sense of your life in retirement, you can start estimating expenses. While it's impossible to know exactly how much you'll spend, you can get a good sense by looking at current expenses and projecting ahead based on your first few years of retirement.
Consider breaking your expenses into these three categories:
This includes "must-haves" such as groceries, utilities, transportation, health care, and housing.
One of the potentially largest expenses in retirement is health care. Read the article How to plan for rising health care costs, which includes an interactive Health Care Cost Estimator.
This category includes "nice-to-haves" such as travel, hobbies, dining out, or purchases like a vacation home or a new vehicle.
This includes unexpected events like a leaking roof or an unforeseen health issue. As you plan, you'll want to budget for these types of expenses. A common rule of thumb is to set aside 3–6 months' worth of living expenses.
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