How Much Will You Spend in Retirement? 7 Expenses to Plan For

How much will you actually spend in retirement?

A common rule of thumb says retirees should plan to replace 70% to 80% of their pre-retirement income. That can be a useful starting point, but I wouldn’t build a retirement plan around it.

Your income and your spending are not the same thing. More importantly, retirement probably won’t look exactly like your working years with 20% or 30% of the expenses removed.

Some expenses disappear. Others increase. And some change dramatically depending on where you live, how much you travel, whether you still have a mortgage, how you obtain health insurance, and how much financial support you provide to children or grandchildren.

So instead of asking:

“What percentage of my current income will I need in retirement?”

I prefer:

“What do I actually want my retirement to look like, and what will that life cost?”

That’s a much better starting point for estimating how much you’ll spend in retirement.

And if you’re within a few years of retiring, it’s an important number to get reasonably close. Your expected spending affects how much you need to save, when you can retire, how much you can safely withdraw from your portfolio, and how much flexibility your plan has when life inevitably changes.

If retirement is getting close, you may also want to read What You Should Do 5 Years Before Retirement.

But for now, let’s focus on what retirement may actually cost.

Why the 70%–80% Retirement Income Rule Can Be Misleading

You’ve probably heard that retirees should plan to replace 70% to 80% of their pre-retirement income.

The logic makes sense.

Once you retire, you’re no longer saving for retirement. Payroll taxes may decrease. Commuting and other work-related expenses may disappear. Your mortgage might be paid off. Your children may be financially independent.

But none of that means your spending automatically falls by 20% or 30%.

Consider two couples who both earn $200,000 before retirement.

One has paid off their house, rarely travels, has financially independent children, and expects a relatively quiet retirement close to home.

The other still has a mortgage, wants to take several major trips each year, plans to help grandchildren with education, and expects to retire at 62 and pay for health insurance until Medicare.

Their incomes are identical.

Their retirement spending won’t be.

That’s why I prefer to build a retirement spending estimate from the bottom up rather than starting with an arbitrary percentage of income.

Here are seven expenses to consider.

1. Housing Costs May Change Dramatically in Retirement

For many households, housing is their largest expense. Retirement can change that expense in several directions.

Maybe your mortgage will be paid off before you retire.

Maybe you’ll carry a low-rate mortgage well into retirement.

Or perhaps retirement is when you finally move, downsize, buy a second home, or relocate.

Each scenario creates a different retirement spending plan.

And remember: a paid-off house isn’t a free house.

You’ll still have expenses such as:

• Property taxes

• Homeowners insurance

• HOA dues

• Utilities

• Maintenance

• Repairs

• Landscaping

• Remodeling and renovations

For Colorado homeowners, these costs can remain significant even after the mortgage disappears.

If you’re debating whether your mortgage should disappear before your paycheck does, read Should You Pay Off Your Mortgage Before Retiring in Colorado?.

The key is to model the housing situation you realistically expect in retirement—not simply assume housing costs will decline.

2. Travel and Fun Spending May Go Up

Retirement creates something many successful professionals haven’t had enough of for decades:

Time.

That can also mean more opportunities to spend money.

You may finally have time for the three-week European trip you could never fit around work. You might ski more, golf more, visit the grandkids more often, buy an RV, spend winters somewhere warmer, or take the entire family on vacation.

There’s nothing wrong with any of that.

Enjoying those things may be one of the primary reasons you worked and saved for retirement in the first place.

The mistake is building a retirement projection that assumes discretionary spending immediately falls when your actual plans suggest otherwise.

It can help to think of retirement in phases.

Early retirement

Travel, hobbies, entertainment, and activities may keep spending relatively high.

Middle retirement

Travel and discretionary activities may gradually slow.

Later retirement

Lifestyle spending may decline further while healthcare, assistance, or long-term-care-related expenses become more important.

Retirement spending doesn’t have to follow a perfectly flat line.

Real life rarely does.

3. Some Work-Related Expenses Really Do Disappear

There is good news too.

Some expenses really can go away when you retire.

Depending on your situation, that may include:

• Retirement plan contributions

• Payroll taxes on wages

• Commuting and parking

• Professional clothing

• Work lunches

• Professional dues

• Other expenses associated with working

One of the biggest items that disappears may be your retirement savings itself.

Suppose you earn $180,000 and are putting $30,000 per year into retirement accounts.

You don’t need to replace that $30,000 of savings with $30,000 of retirement spending.

That’s one reason gross income can be a misleading starting point.

Instead, look at where your money actually goes today and identify what genuinely stops when work stops.

4. Healthcare Costs Change Before and After Medicare

Healthcare deserves its own line in almost every retirement spending plan.

If you retire before age 65, the first question is usually:

How will I pay for health insurance until Medicare?

Depending on your situation, that could involve a spouse’s employer plan, COBRA, an Affordable Care Act marketplace plan, or another form of coverage.

The cost can be significantly different from what you paid while employed, especially if your employer subsidized a large portion of your premiums.

Then Medicare begins at 65 and the calculation changes again.

Medicare does not mean healthcare becomes free.

Your budget may still include Medicare premiums, supplemental coverage, prescriptions, dental and vision expenses, deductibles, copays, and other out-of-pocket costs.

Higher-income retirees also need to understand IRMAA, which can increase Medicare Part B and Part D premiums based on income.

That creates an important connection between retirement spending and tax planning. Roth conversions, capital gains, IRA withdrawals, and other income decisions can potentially affect future Medicare premiums.

I cover that relationship in What Colorado Retirees Should Know About Medicare IRMAA and Tax Planning.

The important point is that healthcare isn’t one static retirement expense.

Your costs at 62 may look very different from your costs at 65, 75, or 85.

5. Taxes Don’t Disappear When Your Paycheck Does

This is one of the easiest retirement expenses to underestimate.

A retiree might say:

“We need $10,000 per month.”

But is that $10,000 before tax or after tax?

If you want $10,000 per month available to spend, your retirement plan may need to generate considerably more than $120,000 per year.

And where the money comes from matters.

Retirement income can include:

• Social Security

• Pension income

• Traditional IRA and 401(k) withdrawals

• Roth IRA withdrawals

• Taxable investment accounts

• Interest and dividends

• Capital gains

• Rental income

• Business or consulting income

Those sources don’t all receive the same tax treatment.

That means two retirees who each spend $120,000 per year could require different amounts of gross income to support that lifestyle.

For Colorado residents, state taxes add another layer. I cover those rules in What Taxes Will Retirees Pay in Colorado?

You can also go deeper with Retirement Tax Planning: 7 Tax Traps to Avoid Before You Retire.

This is why retirement spending and retirement tax planning shouldn’t be treated as separate exercises.

First determine what you want to spend.

Then determine how to create that spending money after taxes.

6. Your Kids and Grandkids May Still Be in the Budget

Retirement projections sometimes make a convenient assumption:

The kids are grown, so the expense is gone.

Real families tend to be messier than spreadsheets.

You might help an adult child with a house, contribute toward a wedding, fund a 529 plan, pay for a family vacation, buy plane tickets so everyone can come home for Christmas, or simply become the person who grabs the check when the family goes out to dinner.

For many retirees, family support isn’t an accidental expense.

It’s something they genuinely value.

If that’s you, put it in the plan.

I’d rather see a retirement projection intentionally include $10,000 or $20,000 per year for family gifts and experiences than pretend the expense doesn’t exist and watch it appear every year anyway.

Retirement planning isn’t about minimizing spending.

It’s about determining which spending is important enough to plan for.

7. Irregular Expenses Are Still Real Expenses

This may be the most overlooked category of all.

Most people are reasonably good at estimating recurring monthly bills.

Then the furnace dies.

The roof needs replacing.

You buy a new car.

The kids announce a destination wedding.

You decide the kitchen that’s been “fine for now” for the last eight years is definitely not fine anymore, especially if you're spending more time at home rather than at work.

These expenses may not happen every month, but they’re still part of your cost of living.

One way to handle this is to create a separate annual allowance for irregular expenses.

For example, rather than pretending vehicles cost nothing during the years you don’t buy one, estimate how frequently you replace a vehicle and approximately what you expect to spend.

Do the same for major home repairs and other predictable-but-irregular costs.

A $30,000 expense every five years is still roughly a $6,000-per-year planning expense.

Irregular expenses are still real expenses.

Your retirement plan should acknowledge them.

Don’t Forget Inflation

Once you’ve estimated what retirement might cost today, there’s another problem:

Prices won’t stay where they are.

A retirement beginning at 60 or 65 could last 25, 30, or even 35 years.

At 3% annual inflation, prices roughly double in about 24 years. So a lifestyle costing $8,000 per month today could eventually cost close to $16,000 per month to maintain if inflation averaged around 3% over that period.

That doesn’t mean every expense rises at exactly the same rate.

Healthcare may behave differently from travel. Property taxes may behave differently from groceries. Your mortgage payment may be fixed while homeowners insurance rises. And discretionary spending may decline as you age.

But ignoring inflation can make a retirement plan look much safer than it really is.

I wrote more about this in The Silent Retirement Risk: Why Inflation Can Be More Dangerous Than Market Volatility.

A Better Way to Calculate How Much You’ll Spend in Retirement

Instead of starting with 70% or 80% of your income, build your retirement spending estimate from the bottom up.

Start with what you actually spend today.

Then divide your expenses into five categories:

1. Expenses that continue

Groceries, utilities, insurance, property taxes, subscriptions, entertainment, and normal household expenses.

2. Expenses that disappear or decline

Retirement contributions, commuting, work-related expenses, and potentially your mortgage.

3. Expenses that may increase

Travel, hobbies, healthcare, family support, and activities you’ll finally have more time to enjoy.

4. Large irregular expenses

Vehicles, home repairs, major trips, weddings, gifts, and other expenses that don’t fit neatly into a monthly budget.

5. Taxes

Estimate the gross income or withdrawals required to produce your desired after-tax spending.

Then ask yourself one more question:

Does this budget describe the retirement I actually want?

If the spreadsheet says you can spend $100,000 per year but the retirement you’re describing realistically costs $140,000, you haven’t solved the problem by typing $100,000 into the software.

You’ve simply made the projection look better.

Your Retirement Spending Number Should Probably Be a Range

There’s one more thing I’d avoid:

False precision.

If a financial plan says you can spend exactly $9,437 per month for the next 30 years, I wouldn’t put much confidence in the last $37.

Life is too unpredictable.

Markets change. Inflation changes. Tax laws change. People move. Homes need repairs. Family members need help. Travel plans change. Your own priorities change.

A better retirement plan has room to adapt.

One approach is to identify a core spending level that covers the lifestyle you want to maintain and a discretionary spending level that can move up or down depending on markets, taxes, and circumstances.

That flexibility can be extremely valuable over a 30-year retirement.

So, How Much Will You Actually Spend in Retirement?

Probably not exactly 70% or 80% of what you earn today.

Maybe less.

Maybe more.

The useful answer comes from understanding your actual life.

Where will you live?

Will you have a mortgage?

How much do you want to travel?

What will healthcare cost?

How much do you want to give to children and grandchildren?

What large purchases will come up?

What taxes will you owe to generate the income you need?

And how might those answers change over the next 20 or 30 years?

Those are better inputs for a retirement plan than a generic income-replacement percentage.

Because retirement planning isn’t about figuring out how little you can get away with spending.

It’s about determining whether the money you’ve accumulated can support the life you actually want to live.

If you’re within five years of retirement, Winding Trail Financial Planning helps retirees and near-retirees coordinate retirement spending, investment withdrawals, taxes, Social Security, Medicare, and portfolio decisions so the pieces work together.

Thanks for reading!

Dwight Dettloff, CFP®, CPA/PFS, RICP®

Frequently Asked Questions About Retirement Spending

How much should I expect to spend in retirement?

There is no single percentage that works for everyone. The often-cited 70% to 80% rule can provide a starting point, but a better estimate is based on your expected housing, travel, healthcare, taxes, family support, hobbies, and other lifestyle expenses.

Do you really need 80% of your income in retirement?

Not necessarily. Some retirees spend substantially less because they stop saving for retirement, eliminate commuting costs, or pay off a mortgage. Others spend just as much—or more—because of travel, hobbies, healthcare, or family support.

What expenses go down when you retire?

Retirement contributions, commuting, payroll taxes on wages, professional clothing, work-related meals, and potentially mortgage payments are common expenses that may decline or disappear. The actual savings vary significantly by household.

What expenses usually increase in retirement?

Travel and leisure spending may increase during early retirement. Healthcare can also become more significant, particularly before Medicare eligibility. Over a longer retirement, inflation can increase the cost of groceries, insurance, property taxes, utilities, healthcare, and other expenses.

Should taxes be included in my retirement spending estimate?

Yes. If your spending goal is an after-tax amount, you need to estimate how much gross income or portfolio withdrawals will be required to produce it. Traditional IRA withdrawals, pensions, Social Security, Roth withdrawals, and taxable investment accounts can have different tax consequences.

How do I calculate my retirement spending needs?

Start with your actual current spending rather than your gross income. Identify expenses that will continue, expenses that will disappear, expenses likely to increase, and large irregular expenses. Then account for taxes and inflation. Finally, compare your estimated spending with Social Security, pension income, portfolio withdrawals, and other retirement resources.

The goal isn’t to predict every dollar you’ll spend for the rest of your life.

It’s to build a realistic starting point—and a retirement plan flexible enough to adjust when real life turns out differently.