2) Estimate Your Expenses
Now it's time to get practical. How much is it going to cost to live the life you want?
Keep in mind that some expenses will likely go up in retirement – like health care, insurance and travel. Others may go down, possibly your housing and transportation costs. Of course, it all depends on the lifestyle you choose.
Now is a good time to get a handle on how much you're likely to need. A good way to start is to estimate the cost of your basic needs, as well as your non-essential lifestyle needs.
Necessary Expenses
One way to estimate how much you'll need for the basics, or necessary expenses, in retirement is to consider how much you spend on the basics now. Consider some of the items you may need to estimate in each of these categories:
- Living Expenses
- Housing
- Transportation
- Health Care
- Insurance
Discretionary Expenses
Imagine that your necessary expenses are covered. What else is important to you? Estimate what you'd like to have available each month for entertainment, travel, hobbies, or charitable interests. While it's critical to budget for the basics, you'll also want to plan for the things that will make your retirement more rewarding.