Evaluate your expenses

Key Points

  • It generally takes 70 to 80 percent of pre-retirement income to maintain your lifestyle.1
  • Your personal goals will shape the actual amount of income you need.
  • Inflation can have a big impact on your retirement income needs.

People typically need 70 to 80 percent of their pre-retirement income to maintain their standard of living in retirement. Of course, your exact income needs are dependent on the type of life you’re living. And no matter what your expenses are today, over a long retirement your income needs are likely to shift as you pay off your mortgage, travel less and potentially spend more on health-related expenses as you get older.

Identify your retirement costs

Some types of retirement costs are obvious; others less so. Consider these categories as you start to identify some potential expenses in retirement:

  • Food and clothing
  • Housing and utilities
  • Taxes
  • Transportation
  • Insurance
  • Personal care
  • Debts
  • Gifts to charities and loved ones
  • Recreation

If you recently retired, you may find that your major expenses stay the same, but the amount you spend or how you spend may change. For example, your transportation expenses may be for foreign travel rather than commuting to a job. If you move to a smaller home, or to a less expensive area, your housing expenses may decrease. The purpose of your gifting may shift as well, from helping your children or grandchildren pay for college to making charitable contributions.

Account for inflation

Inflation is one of the biggest factors we all must consider when planning for retirement. Almost everything — from big-ticket items like houses to small stuff like a pack of gum — goes up in value over time.

Whether we’re retiring 10 years from now or 30, the future is going to be more expensive.

  • At 4 percent a year, prices double in just 18 years.
  • At 3 percent a year, prices will double in about 24 years.

It’s important to estimate your retirement expenses on future inflation. To do this, first identify your major retirement costs, then project your spending needs up to 30 years in the future using average inflation rates. And, be mindful that your income will more than likely have to increase year over year just to maintain the same standard of living.

An Ameriprise financial advisor can help you identify and evaluate your retirement income and expenses. Whether you need to rebalance your income and expenses or just refine your plan, a financial advisor can show you ways to help support your lifestyle.