Planning for Retirement? Here's How to Make More Accurate Expense Projections

As someone who has recently become keenly interested in getting their retirement budget "just right," I'm here to tell you it can be intimidating. After all, how do you plan for all possible eventualities?

The truth is that you can't. What you can do is expect things to go off the rails from time to time and plan for those periods. That's where an emergency fund comes into play.

From what current retirees tell me, the worst thing you can do is avoid post-retirement budgeting. While you may not be able to capture all potential expenses, you can get very close.

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Pre-retirement budgeting questions

The first thing to do is ask yourself a series of questions.

Do I plan to move or downsize?

If you've been dreaming of a move to a warmer climate or have long wanted to relocate to another country, factor that move into your budget. If you're downsizing, speak with a real estate agent about how much it will cost to sell your home, your expected proceeds, and how much it will cost to settle somewhere else.

How much will my health insurance premiums change once I'm on Medicare?

It's easy to forget about the cost of healthcare in retirement, particularly since Medicare Part A is free for those 65 and older. Part A covers inpatient hospital, skilled nursing facilities (under specific circumstances), hospice, inpatient rehabilitation, and some home care services. While having Part A is free, you still have to pay deductibles, and those deductibles can rise from year to year.

For example, the inpatient hospital deductible is set to increase by $100 in 2026, from $1,676 to $1,736. In addition, Part A beneficiaries will now pay a coinsurance amount of $434 per pay for the 61st through 90th day of hospitalization, up from $419. While that in no way covers all expected 2026 increases, it serves as a reminder that your premiums, deductibles, and co-pays can all increase, no matter which part(s) of Medicare you opt for.

Do I have all the insurance I'll need, or should I look into additional policies?

If you're concerned about what healthcare costs might do to your retirement plan balance, you may want to look into a long-term care policy that can help offset the out-of-pocket expenses you incur. If not, consider whether you'll want to use the equity in your home if in-home nursing care is ever necessary, or take a look at your retirement account to determine whether you can cover the cost with cash.

What do I plan to do with my time?

This is the fun part of retirement planning. Are you looking forward to spending more time with family, or are you planning to visit every national park in the U.S.? Do you have a hobby that you'd like to turn into a small business, or is there a fishing hole somewhere you'd be happy to visit every day for the rest of your life? In other words, your ideal retirement should be unique to you. Whatever you want to do, calculate how much you expect it to cost and factor that expense into your budget.

What are my expected sources of income?

Make a list of where you expect money to come from throughout your retirement years. Include Social Security, any pensions you might receive, rental income, annuities, withdrawals from your retirement plan, and any other source you'll have coming your way.

Expected expenses

The next step is to get an idea of how much money you'll need to cover your expenses. If it's helpful, use the following breakdown to determine how much you expect to spend each month.

Housing

• Home improvements
• Home maintenance
• Homeowners association fees
• Homeowners insurance
• Mortgage or rent
• Property taxes
• Utilities

Food

• Dining out
• Groceries

Transportation

• Auto insurance
• Car payments
• Fuel
• Public transportation
• Vehicle maintenance

Health Care

• Health insurance premiums
• Medical supplies
• Medications
• Out-of-pocket medical expenses

Insurance

• Disability insurance premiums
• Life insurance premiums
• Long-term care insurance premiums
• Other insurance (e.g., home warranty)
• Pet insurance

Ongoing monthly expenses

• Alimony
• Cable
• Charitable contributions
• Child support
• Clothing
• Club dues
• Credit card payments
• Entertainment
• Gifts
• Gym membership
• Home security
• Internet service
• Loan payments
• Miscellaneous expenses
• Pet care
• Phone
• Subscription services (e.g., streaming services)
• Travel/vacation

Emergency fund

While you're working, the rule of thumb is to build an emergency savings account with enough to cover three to six months' worth of expenses. This money is meant to help you get through if you get sick and can't work, or if your company conducts layoffs and you lose your job. In retirement, you'll still want an emergency fund to cover unexpected expenses. For example, that's where you can keep money to cover home and auto repairs, as well as unforeseen medical expenses.

Three to six months' worth of bills may not cut it, though. Here's why: If you intend to use retirement account withdrawals to cover a portion of your income, it's a good idea to have an alternate source, like a high-yield savings account, from which to draw when the market is down. That way, you can leave the assets in your portfolio where they are to recover from losses or to buy up high-quality stocks at a bargain.

As I plan for my husband's eventual retirement, I continually think of new things to add to the list of expenses. I also brainstorm new sources of revenue that can make those retirement years easier. The nice thing is, no budget is written in stone. There's always room for change.

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