How Much Will You Spend In Retirement?

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I had lunch with a co-worker yesterday who’s a regular reader of this blog.  We talked about personal finance issues, and how to start planning for retirement. He asked a perceptive question, and it’s a critical element to any retirement plan:

“How Do I Know How Much I’ll Spend In Retirement?”

Retirement is, essentially, a math problem.

“Dollars In” must be sufficent to cover “Dollars Out.”

To solve the equation, you must be able to estimate both the “In” and the “Out”.

Simple, right?  Not so fast.

I gave a detailed overview of how I determine our retirement spending in this article. I’m a strong proponent of taking the time to really think through your retirement spending when you’re within 5 years of retirement. In talking to my friend, however, I recommended he NOT take the “bottoms up” detailed approach I had outlined in this article.

When Is A “Rule Of Thumb” Sufficient?

For my friend, his situation warrants a much more general approach to the “How Much Will I Spend” question.  Why?

  1. He’s Young.
  2. He’s got 3 children at home.
  3. He’s early in his retirement planning.
  4. There are too many unknowns to make a detailed analysis worthwhile.

The realization I had as we talked is that the answer to the spending question differs based on where you are in life.  Within a few years of retirement, you’d better get specific.  Track the actual dollars you spend for a few months (the longer, the better), and make adjustments for things you expect will increase or decrease in retirement.

20+ years away from retirement, rules of thumb are fine.

I suggested he use the “80% of current” as a rough estimate for spending, then run a retirement calculator and get a general sense of whether he’s on track.  This article shows actual data of spending patterns by age, and it’s clear that, on average, spending does decline a bit after retirement.  If you’re planning an unusually active and expensive lifestyle after retirement, simply run the calculator again with higher spending ranges and analyze the impact.

Retirement Calculators


I found this excellent article on The Best Retirement Calculators, and strongly encourage anyone interested in using a retirement calculator to read the article.  It has links to many retirement calculators, and includes notes on the pros and cons of each.  Great article.

For someone more than 20 years away from retirement, a rough estimate using a rule of thumb and any of the attached retirement calculators is sufficient for a high level check up.  Don’t make it more complicated than it needs to be, there are too many things that will change between now and retirement to justify anything more specific.

As you get closer, follow the steps I laid out in my “When Can I Retire” series.

The one thing that’s certain is that you’ll be wrong.  Recognize that fact, get as accurate an estimate as required, and move on. Repeat the exercise every year or so.  The closer you get to retirement, the fewer unknowns there will be in your equation.  However, recognize that you’ll never eliminate them entirely.

Once you’ve retired, track how much you’re spending annually, and have an annual review to make sure you’re not overspending.  Only then will you really know what your retirement spending actually is, as well as the actual performance of your investments.  It’s important to make adjustments if necessary to insure your money lasts as long as you do.  Personally, I plan on updating my personal retirement cash flow model when I update my net worth statement every January with year-ending figures. I encourage you to find a way to build an annual check-up into your retirement planning as a means to keep you on track.  Run a retirement calculator.  Meet with your financial planning professional.  Update your spreadsheet.   Find something that works for you to insure you’re keeping your spending levels at an appropriate pace to maximize the chance that your money will last through your lifetime.

To my friend – thanks for buying lunch yesterday, I hope this article sheds a bit more light on our discussion.  The fact that you’re trying to answer this very difficult question is a great sign that you’re starting to pay attention to this stuff.  It brings me genuine pleasure to realize this blog may have been just the thing that got you thinking about the need to better understand your personal finances.

No one cares about this stuff more than you.

Learn It.

Own It.

Achieve A Great Retirement.




  1. Fritz – As always, great advice!! Now that I am a full 43 days into actual retirement a few pieces of wisdom you have hit in your blog posts are worth elaborating on perhaps:
    1. Have funds in Cash for your first couple of years. With the crazy stock market’s swings in 2016 we don’t need to worry about making sure we have enough and timing the market … however its best to know what the number really needs to be (and a hedge is nice).
    2. Think about (and plan for) the taxes … they’ll hit you in a year … or sooner and you’ll need to be ready for them – the old adage of death and taxes still hols true.
    3. Make sure you have plans to do things the first couple of years or time will slip by, buy whatever you need to make those plans come to a reality while you still have an income.
    4. Enjoy getting to know your spouse as you did when you were dating, and early married, its wounderful to be retired!!

    All The Best

  2. Fritz – I like the way you teach others how to do this themselves rather than just giving your answer. Most importantly you stress that this is a process. Start out with the generalities (rules of thumb), then start working the specifics as you get closer to your goal and finally keep refining so you never lose track of where you’re going and how you’ll get there. It’s not hard, it just takes persistence, patience and confidence.

  3. Thanks for the perspective. My advice for young people generally revolves around savings rate. What will be 30 or 40 years into the future is unknown. If I can influence a family member or friend to put 20% away in low cost index funds I feel I’ve done them a service.

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