Most people assume their expenses in retirement will account for about 70% to 80% of what they were during their working years; however, several expenses are often overlooked.

Even as commuting costs decrease, transportation expenses such as fuel and maintenance will still need to be covered, while new car purchases remain inevitable and costly.

Expenses

Retirees often discover that their expenses vary dramatically from what was predicted when planning for retirement. Transportation costs may decrease since you won’t be going out for lunch with coworkers anymore; however, other expenses like eating out, home maintenance and entertainment could increase, especially since you now have more free time to explore new activities.

Consider unexpected health care expenses you hadn’t planned for, such as nursing home facilities which can run up to $100,000 annually without long-term care insurance policies to cover them. If these costs become financially burdensome without protection in place, these bills could prove disastrous for your finances.

Other expenses to keep an eye on when creating a budget include one-off expenses such as wedding or major repairs; as well as discretionary spending like entertainment, dining out, hobbies, subscriptions and travel/vacations that can quickly add up over time.

An effective way to assess your expenses is to look through bank statements, credit card bills and receipts. Take an estimate of current spending then subtract out expenses that won’t exist upon retirement such as car payments or mortgage payments – this will give an idea of current spending as well as help determine what expenses might appear upon leaving work and plan a more realistic savings strategy.

Savings

Once you no longer earn a paycheck, it can take time to adjust your expenses and adapt your lifestyle accordingly. That may involve changes such as downsizing to a smaller home, eliminating the need for a second car and taking less trips to visit grandchildren. Your retirement budget must account for unexpected costs like medical emergencies, long-term care costs or costly home repairs that arise during this stage.

Calculating essential spending can be straightforward, but estimating non-essential retirement spending such as eating out, magazines and travel can be more complex. A good practice would be to observe your spending habits for several months prior to retiring in order to establish a baseline figure.

As part of your retirement budget planning, it’s essential that you consider whether you can pay off debt before retiring or continue making payments during that time. If possible, eliminating all outstanding debt before entering retirement will reduce monthly bills and free up more funds for saving. If not possible, developing a plan to pay off that debt while making payments throughout your retirement may enable more of your income to go toward savings and other pursuits.

Taxes

Consider taxes when creating your retirement budget. This should include federal, state and local income taxes as well as property taxes should you own a home.

Tax payments in retirement depend on a range of factors, including Social Security benefits and any additional taxable income such as pensions or withdrawals from retirement accounts. To help determine how much of your Social Security benefit will be taxed, the IRS provides an easy worksheet which takes into account total income, filing status and any additional sources of taxable income such as pensions or withdrawals from accounts.

Kiplinger offers a tool that will show which states are more tax-friendly for retirees than others.

Consider any expenses unique to retirement that were not present during working life, such as long-term care costs or travel. It is crucial that when planning your budget you factor these additional costs in. In essence, budgeting ensures you have enough money in retirement to cover necessary expenses while living the lifestyle you envision – so creating a realistic spending plan takes into account both expenses and sources of income during this transitional phase of life.

Investments

Retirees often envision their golden years as being spent relaxing and having fun, yet financial worries may prevent them from fully enjoying this phase of life. A retirement budget provides a more accurate representation of what amounts they must save and spend each month to reach their goals.

As the first step of creating a retirement budget, it is necessary to estimate your annual income. This should include both regular sources such as Social Security and pension payments as well as potential returns such as dividends or capital gains on investments. Furthermore, other forms of income such as rental properties or part-time work must also be taken into consideration.

Maintain a detailed account of your ongoing expenses, such as housing costs, food, utilities and transportation. Although these expenses usually decrease once retired, they still can have an effect on savings. It’s also essential to factor in healthcare costs which may become significant after retiring – premiums, deductibles and out-of-pocket costs must all be taken into consideration here.

Be sure to factor in discretionary spending such as entertainment, eating out and hobbies when planning for retirement. While these purchases may add extra enjoyment and make life more fulfilling in retirement, they can quickly add up and strain finances. Depending on your individual situation, there may be ways of cutting these costs by decreasing travel or engaging in more cost-efficient activities.