• Steve Coker, CFP

How much will I spend in retirement?

I am often asked, “How much money do I need to retire?” The answer is, of course, “it depends.” It depends on many factors but the most important is, “how much will you spend in retirement?” I have had clients who could comfortably retire on $3,000 a month and clients who need $30,000 a month. These extremes will have vastly different retirement savings objectives. Yet, many potential retirees have only a vague idea of what they are currently spending, and no idea what they will spend in retirement. So how do we answer the key spending question? There are three basic approaches to project retirement spending: averages, budgeting, and income replacement. Each has its pros and cons, and each can help inform our decision, but I believe income replacement is the best approach.


National averages of retiree spending like the chart below from J.P. Morgan can be helpful when planning how much you will spend in retirement. The data shows what everyone else is doing, at least on average, and this latest release shows that, among those with investable wealth of $1M to $3m, the average retiree household aged 60-64 spends $102,390 per year, or about $8,500 per month. But is also important to understand the limits of this kind of analysis. No one is truly average, so this spending may or may not work for your specific needs, which leads us to a more specific analysis, budgeting.


You can be more precise with your retirement spending projection by preparing a detailed budget. The process involves writing down your current outflows, which is always a good idea, but even more important as you consider retirement. Many consider budgets the gold standard for retirement planning, but in my experience, they have pitfalls of their own. Often, they overlook periodic or unusual spending, such as gifts, travel, or repairs, which can add up significant dollars over the years. Because of this flaw, I have been distrustful of budgets and rely most heavily on what I call income replacement.

Income Replacement

Since the goal of most retirees is to simply retain the same lifestyle but not have to work, an excellent benchmark for what you will need in retirement is your net take home pay while working – a goal that I call income replacement. In theory, if your income, as defined by net take home pay, does not change, then retirement will be seamless, and your lifestyle will stay the same. I focus on net take home pay because it adjusts for items that will go away in retirement, such as social security taxes and 401k contributions. Often, we will need to add health care insurance costs since health care insurance can be a deduction from the paycheck while working but will be part of spending when retired. Of course, income replacement has its disadvantages too, most often when making significant lifestyle changes, such as moving out of state in retirement. Still, income is an important starting point, and often the best approach when determining how much you will spend in retirement.

Of course, for all three of the above approaches, taxes will also need to be considered. If you are considering retirement and would like us to help you analyze your situation, please give us a call.

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