Do you know where your money goes every month? When you retire, you’ll need to figure out how much money is coming in the door, which is often pretty simple. The hard part is figuring out where your money goes every month, yet it’s essential to do that before you transition into retirement, so you’re not blindsided by too little coming in and too much going out.

Yesterday I talked about why creating a budget and tracking your income and spending in an absolute must before you retire. Today, I want to talk about another topic that will help you budget your spending in retirement, which is how you can expect your spending to change in retirement.

The fact is, your spending will change in retirement. A popular rule of thumb that governs much advice in this area is the 80% rule, which suggests that you should plan to need about 80% of your pre-retirement income to maintain your standard of living in retirement.

Most rules of thumb are worthless pieces of garbage, and this one is no exception. Sorry, but it’s just too simplified to plan for your changing expenses in retirement with this 80% rule of thumb. For plenty of Americans, particularly working class Americans who can’t afford to live it up in retirement, they will be spending a lot less than this in retirement out of necessity. They may only have social security and little else.

If on the other hand, you make $100,000 a year and I tell you that you’ll need $80,000 a year in retirement because of the 80% rule, that may seem reasonable to some and ridiculous to others. No client has ever told me: “Ashley, I’m so excited to retire so I can downgrade my lifestyle”. Or, “I can’t wait to cut back on all the fun stuff I used to do when I had a job!”

Am I right? For many, expenses don’t necessarily go down, but they do change. You might payoff your mortgage at some point during retirement. You’ll usually spend less on gas and parking, especially if you had a long commute for work, but you’ll likely spend more on travel, hobbies, or home projects now that you have the time to tackle those things.

So forget the rule of thumb, and just track your actual expenses. Then look at the expenses that will change based on the lifestyle you envision in retirement and ask yourself if you’ll need more, less, or about the same income as you have today to cover those expenses.

That’s it for today! Thanks for listening.

Before you go, I have a quick freebie for you. If you want to forget the rule of thumb planning and get answers to your specific questions around retirement, send me an email at [email protected]. That’s [email protected], and I’ll send you a link where you can schedule a free, 15 minute retirement strategy call with me at a time that’s convenient for you.

My name is Ashley Micciche and this is the One Minute Retirement Tip.

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