What Will Retirement Cost?

The story: What will our retirement really cost?

Walt and Grace sort their bills at the kitchen table into costs that end, stay, rise or start in retirement.

1. Narrator: Walt read that retirees need about 70 to 80 percent of their old income. Grace wants their real number.
2. Grace: Our commute ends, and we stop saving for retirement. But I plan to travel, and Walt wants a workshop.
3. Narrator: Some costs go away. Some stay. Some go up, like health care. And some are brand new, like Medicare premiums.
4. Walt: So that percent rule could be too high for some people and too low for us.
5. Narrator: Grace splits their list into essential bills and flexible ones.
6. Narrator: Then they try living on the retirement budget for six months while Walt still works, and save the difference.
7. Narrator: Price the life you want, not a percentage.

What you’ll learn

1. Rules of thumb are a rough start

   You may hear that retirees need about 70 to 80 percent of their working income. That’s an average across many people. Your own number could be lower or higher, depending on your home, your health and your plans.

2. Some costs go away, some go up

   Commuting, work clothes, payroll taxes and retirement saving often end. Health care, travel, hobbies and home repairs often rise. A paid-off mortgage can lower costs a lot, and new costs like Medicare premiums appear.

3. Essential and flexible

   Essential spending is the must-pay list: housing, food, utilities, insurance and health care. Flexible spending is what you could trim in a hard year, like trips and gifts. Knowing the split helps you decide which income covers what.

4. Try a trial run

   If you can, live on your retirement budget for six to twelve months before you stop working, and save the difference. You’ll learn your real number, and the extra savings help either way.

   Example: living on $4,200 a month instead of $5,600 for six months shows the budget works and adds $8,400 to savings.

Key words

replacement ratio

the share of your working income you’ll need

essential spending

must-pay bills

flexible spending

costs you can cut

Also called: discretionary spending

Common questions

I’m already retired. Is this still useful?

Yes. Sorting your current bills into essential and flexible is the first step of a fixed-income budget, and it helps in any year when money is tight.

Remember this

Price the life you want, not a percentage.

Try it: Tag each bill for retirement

1. List your regular bills.
2. Mark each one: goes away, stays or changes in retirement.
3. Add new costs you expect, like Medicare premiums.
4. Circle the essentials.

No account: list your bills on one sheet of paper and tag each one.