“Expect to spend 55%–80% of your current income annually in retirement.” Retirement Income Replacement Ratio assumes you’ll spend about 55% – 80% of the income you’re making before you retire every year in your retirement.
Effectively, spending patterns change during retirement, according to an analysis of Bureau of Labor Department. For example, starting at age 55, spending tends to increase slightly, as some younger retirees travel or take on new pursuits. In the age range when most are retired at 65+, there is a significant drop in overall spending, according to Fidelity.
Specifically in retirement, spending on food, entertainment, and transportation remains relatively stable, while spending on housing tends to go down and spending on health care goes up. According to research by Fidelity Financial Solutions, you should plan on factoring in approximately 15% of your retirement expenses will be related to health care expenses.
Lifestyle is another big factor to consider in estimating how much you will spend in retirement. Increasingly people tap into their savings to create a more active lifestyle that includes travel, adventure, and new activities.
Fidelity’s research suggests if you plan an active lifestyle in retirement, it will,ratchet up your overall retirement budget by 6 percentage points compared with a less active lifestyle.
Reference:
- https://www.kiplinger.com/retirement/602328/10-things-youll-spend-less-on-in-retirement
- https://www.fidelity.com/viewpoints/retirement/spending-in-retirement