Best Retirement Calculators

Retirement Living Expenses

Hopefully, our retirement living expenses will be significantly less than our pre-retirement living expenses.

When we retire, we stop saving for retirement.  We will not pay taxes or if we do pay taxes, they will be much lower than before retirement.  Hopefully, we will have our mortgage and other debts paid so we will not be paying our mortgage payment or interest on other debts in retirement.

We need some data as the basis to project our retirement living expenses.

In the United States, the U. S. Government is the best source for this information.  The United States Department of Labor - Bureau of Labor Statistics (BLS) compiles a consumer expenditures survey each year.  The information is released each October for the previous calendar year.  The website for this information is http://www.bls.gov/cex/home.htm. 

Since we are assuming that we are trying to find statistics for a retired couple, the best information I found is in the table “Composition of consumer unit”.  For 2008, this can be read in text at

ftp://ftp.bls.gov/pub/special.requests/ce/standard/2008/cucomp.txt

 or in PDF format at

http://www.bls.gov/cex/2008/Standard/cucomp.pdf.

In Table 5, Composition of consumer unit, there is a column “Husband and wife only”.  This is the column to use for your information.

Here is what we know about this average husband and wife unit:

• There are 26,919,000 units like this in the US.
• The average income before tax for the couple is $75,312.
• The after tax income is $72,457.
• The age of the reference person is 57.6 years.

This seems like a good reference since they do not have any children to take care of and they are relatively close to retirement age.  Their life style and living costs should approximate a couple starting retirement.

Your income and spending habits may not exactly match our reference couple, but your expenses as a percent of your income will probably be close to the percentages of the reference couple.

The percentages are what we will used for comparison.

The table on the BLS website is not easy to read since it lists the total for a category first followed by the detail.  I have extracted the column for the husband and wife unit and made some format changes to make it easier to read.

All total lines are bold.

If a total covers several detailed level items and/or subtotal items, the item is highlighted in yellow.

The table shows the percent of income of each expense.

I added two additional columns, Basic Costs and Discretionary Costs.  These classifications are debatable so feel free to change the classification as you please.  My wife did not consider footware a discretionary cost.  It is a necessity of living (LOL).

Bottom line.  Using my classifications, this average couple spends $30,144 (40% of income) for basic costs and $11,690 (15.5% of income) for discretionary costs.

I have created an Excel Retirement Living Expenses Calculator using the data in the Consumer Expenditure Survey.  You you can download and use it for your retirement expenses calculations at the above link.

Here is the Consumer Expenditures Survey for your use.  You can download this table in Excel format and modify it for your own life style.

You can see that according to these numbers, a couple's basic retirement living expenses are 40 percent of income and the discretionary expenses are 15.5 percent.  The total living expenses are 55.5 percent of income.

Many financial planners say that we need 75 percent or more of our pre-retirement income to live on during retirement.  This 55.5 percent is significantly less than that.

A logical analysis supports this 55.5 percent versus the 75 percent.  When you consider that during our working lives, we have been paying off a mortgage, paying to raise children, supporting multiple vehicles, sending children to college, saving for retirement, etc., we have not had 75% to spend on ourselves.  Why do we suddenly need 75% at retirement?

One other thought to consider is some of the retirement living expenses that are included in the itemized living expenses will actually be lower after retirement.  These include clothing, cleaning bills for work clothes, fuel costs for commuting, parking fees at work, business gifts, etc.  These are not taken out of any of the costs.

Health insurance may also be reduced when both members of the couple go on Medicare at 65.  However, Medicare premiums are projected to rise in the future so plan for increased health care costs in the long term.

When you work through these expenses and decide what your real retirement living expenses will be, you can then enter this information into the best retirement calculators.

Use the Retirement Living Expenses Calculator on this website

Here are other Retirement Living Expenses worksheets or calculators to consider:

• Vanguard Retirement Expense Worksheet
• MSN Money Retirement Expense Calculator
• Met Life Retirement Expense Worksheet

Finished Retirement Living Expenses - Go back to home page.