How to Estimate Your Retirement Budget Decades in Advance

To calculate your budget in retirement, you must first have a good grasp on your budget today.

Guessing how much money you will need to retire can be complicated, especially if the event is years away. The earlier you sit down and plan for it, however, the more chances you will be able to retire comfortably and without stressing over money and quality of life. To estimate your retirement budget decades in advance, you will need some tools and a good knowledge of where your finances are right at this moment.

Instructions

1. Estimate your future budget based on your expenses rather than your income. To do this, examine your lifestyle and think of what you would like to do once you retire. If you want to travel, take up a hobby or open a small business, your living expenses could rise from where they are now. To get a sense of how much per month you will need in retirement, figure out how much, in today's dollars, you spend on housing; utilities; food and other basic expenses; clothing and transportation. Then adjust your cost for your projected future needs. Subtract your housing costs if you think you may have your mortgage paid off by retirement, for example. Add or subtract from your food bills, depending on how much you expect to dine out. Add in costs for hobbies or other retirement pursuits, but subtract costs related to your work, such as commuting costs and wardrobe costs. This will give you an idea, in today's dollars, of how much you would need to support your retirement lifestyle. It is an easy matter to add inflation estimates to project those figures into the future to determine your needs in future dollars. Basing your retirement budget on those projected expenses will make it more accurate.

2. Take a look at your investments and savings. Whether you have stocks, investments or properties, you should calculate what income they will produce by the time you reach retirement age. When counting, don’t include Social Security benefits or other government income. Instead, focus on what you will be producing on your own.

3. Check your Social Security benefits, even if you’re far away from retirement. You can do this on your own by looking at your own statement or by plugging your data into the Social Security Administration's quick benefit calculator (find a link in the References section). This will give you a rough approximation of the income Social Security will provide, depending on when you plan to retire.

4. Take your health into consideration. While you can’t guess what your health will be like 20 years from now, but you can at least estimate how much coverage you will have for whatever comes up. If you currently have health care benefits, your Medicare coverage should take over by the time you retire. Medicare insurance coverage is standardized nationwide, but different mixes of insurers offer slightly different packages at different prices in different states. To see what Medicare insurance programs are currently available in your state, you can check Medicare’s official website through the link in the References section.

5. Visit the Inflation Data website to get information and charts on the inflation rates between 1913 and the current year. Examining the charts will give you a good idea of what the averages are and help you guess what to expect in coming years. Even if your retirement is decades away, a rough estimate should be enough to help you calculate totals.

Tips & Warnings

• If you plan to move when you retire, you will need additional money to get settled in the new location. If you own your own home, you can always sell it to pay for the move. Otherwise, you should factor in the expense into your retirement budget.

• You can expect your monthly cost for health insurance to decrease once you qualify for Medicare, but out of pocket expenses for medications and copayments are likely to rise as you age.

References

• Social Security Administration: Quick Benefits Calculator
• Social Security Administration: Benefit Estimates Based on Age at Retirement
• Medicare.gov: Check Medicare Programs By State
• Inflation Data: Charts and Information