Nearly half of American households age 55 and older don’t have a retirement savings plan (such as an IRA or a 401(k) plan). And 29% don’t have a defined benefit plan (e.g., an employer-sponsored plan that could provide a monthly payment for life).1
To start planning for the retirement you want or will be able to afford, you’ll need an idea of your current costs, what they’ll be in the future, and how much income to expect from your investments. From there you can adjust as needed.
Five steps that could help you get started
Let’s break down your likely costs by category to get a better idea of what it might cost to maintain your lifestyle in retirement. For simplicity, the estimates below assume the cost for one person in one household with one income.
Step 1. Current costs
- Mortgage or rent payments if you don’t own your home.
- Utilities, streaming, cable & internet, association fees, maintenance, insurance, taxes, and other home costs.
Total estimated cost: $1,000 to $5,000 per month.
- Food, clothing and health care costs.
- Transportation costs, gasoline, maintenance, repairs and car insurance.
- Insurance costs, including life, health, dental and long-term care insurance.
Total estimated cost: $1,000 to $2,000 per month.
Lifestyle & hobbies
- Travel, dining out, entertainment and sporting events.
- Health club memberships, golfing, fishing and other hobbies.
Total estimated cost: $500 to $1,500 per month.
Children & grandchildren
- Education expenses, including tuition or helping pay off student debt.
- Gifts to help support their living expenses.
Total estimated cost: $0 to $1,000 a month.
- Donations to your favorite causes.
- Regular financial support to your place of worship.
Total estimated cost: $0 to $1,500 a month.
Step 2. Future costs
- Health care costs could potentially increase in retirement based on your current health and fitness.
- Medicare is free once you reach 65, although you’ll need to pay for prescription coverage.
- Supplemental policy may be needed to cover costs that Medicare does not.2
Total estimated costs: $100 to $200 a month or more.
- Long-term care insurance policy. Extended care costs beyond what is covered by Medicare and supplemental policies will come out of your pocket—unless you have a separate LTC insurance policy that covers them.
- Assisted living costs are normally not covered by traditional insurance policies. They could average about $4,500 a month.3
- Other expenses such as groceries, clothing, insurance, charities, entertainment, children and grandchildren.
Total estimated cost: $5,600 to $6,700 per month.
Would you like to leave some money for your heirs and your favorite charities? The extent of your generosity will depend largely on the size of the nest egg you build up during your working years and how wisely you manage it throughout your retirement.
Step 3. Adding it up
The table below shows a summary of the hypothetical costs covered above: