Expenses

The first step in determining your retirement income profile is calculating an accurate dollar amount of your average yearly expenses. This is perhaps the most challenging step in the process but in order to depict a realistic portrayal of what your current lifestyle costs it is a vital task. So let’s get started !

Do you perform all of your “retail” banking with one bank? In other words, are your checking, money market, credit card and debit card accounts easily accessible in one expense statement?

If so, the task of compiling your expense account can be rather simple, especially if your bank provides you with a Budget and Expense tool. This tool keeps track of all of your expenditures on a monthly basis so if you add up your monthly expenses including cash withdrawals, checks written, automatic withdrawals, debit and credit card purchases, etc. you will create an expense report for one year. Ideally, you will create an expense report for several years to give yourself a more accurate figure.

The Budget tool typically categorizes expenses under unique headings such as food, entertainment, travel, home repair, etc. Carefully review your expenditures within these categories to determine whether the expenses are recurring or “one off”. Expenses you may occur while working vs. while in retirement may be unique. For example, your costs for travel and health care may increase during retirement whereas costs such as transportation, clothing and home improvement may decrease. Consider these disparities when coming up with an amount you feel you can comfortably live on in retirement. 

 

Additionally, make an initial determination as to what tax bracket you will fall under vs. your current tax bracket.

While this profile you are creating is based on your current expense data, only you know the nuances of how your lifestyle may differ in retirement. Keep in mind too that unexpected expenses will always occur so perhaps set aside a dollar figure for that as well.