Retiring This Year? Here's How To Build an Accurate Monthly Spending Estimate Before Your Last Paycheck
Retiring this year means trading a steady paycheck for income that may come from several sources.
Before that final paycheck arrives, near-retirees need a realistic estimate of what they expect to spend each month. That starts with current spending, but it also requires accounting for costs that will change, disappear or show up less often.
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Here’s how to build an accurate monthly spending estimate and leave room for real life.
Track What You Spend
A retirement spending estimate should begin with what a household already spends — not what someone remembers spending.
Jacob Bayer, certified financial planner (CFP) and founder of Jacob Bayer Wealth Management, reviews 12 months of bank and credit card statements when building retirement income plans.
That year of transactions captures recurring bills and everyday purchases while revealing spending patterns that memory can blur.
“The only reasonable place to start is with actual data,” Bayer said.
The retirement planners MoneyLion spoke to said reviewing a full year of spending establishes a concrete monthly baseline. Once that number is clear, future retirees can begin determining which expenses are likely to stay, change or disappear after the paychecks stop.
Adjust What Will Change
Current spending provides the starting number, but it shouldn’t be copied directly into a retirement budget.
Michael McAuliffe, president of Family Credit Management, recommended reviewing each expense and asking whether it will grow, shrink, disappear or be replaced after retirement.
A mortgage or college costs may end, while healthcare or travel spending may rise. That exercise turns a record of past spending into a forward-looking estimate.
“Sitting down and going through this level of planning is important because it turns something abstract into something very specific to you and your needs,” McAuliffe said.
Catch the Missing Costs
“Unexpected, but predictable expenses” can throw off a retirement budget, said Jordan Masciorini, certified retirement counselor (CRC) at Ticino Wealth.
A roof eventually needs replacing. Cars wear out. Pipes burst. The timing may be unknown, but the possibility is not.
Rather than waiting for one large bill, Masciorini recommended setting aside money for these costs as part of the retirement income plan.
Future retirees can estimate what they may spend over time and convert that figure into a monthly savings target. The expense then has a place in the budget, even during the months when nothing breaks.
Set Two Spending Numbers
A monthly spending estimate can also show where retirement income should come from.
Bayer recommended funding the essentials — including housing, food, healthcare, insurance and utilities — with guaranteed income such as Social Security or pensions, supplemented by very conservative withdrawals when necessary.
Portfolio withdrawals can then cover discretionary spending on travel, dining out and hobbies.
“This two-tier spending structure allows retirees to reduce discretionary spending in down markets without impacting the spending on essentials,” Bayer said.
Matching each spending layer with an income source gives retirees flexibility while helping protect the portfolio from unsustainable withdrawals.
Test Before You Retire
About six to 12 months before retirement, Bayer recommended living on the proposed retirement budget while the paycheck is still arriving.
“This allows people to see what a budget will be in a true stress test and allows people to see what expenses they will forget to budget for while they have income,” Bayer added.
The goal is not to predict every future expense. It is to test whether the monthly number works before it becomes necessary.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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