skip to Main Content
How To Calculate Your Retirement Expenses

How to Calculate Your Retirement Expenses

Retirement planning can be difficult, especially when it comes to predicting the expenses you’ll have to account for during your retirement years.

There are several types of retirement expenditures to consider, ranging from essential expenditures such as housing and utilities to discretionary expenditures such as holidays and entertainment. Furthermore, healthcare costs and unexpected expenses can have an impact on your retirement budget.

In this article, we’ll look at various strategies for predicting retirement spending, as well as the need for taking inflation and lifestyle changes into account. We’ll also go over how to identify your retirement income sources, calculate your retirement spending, and monitor and change your budget as necessary.

Understanding these fundamental ideas can help you plan for a financially comfortable retirement.

Types of Retirement Expenses

When planning for retirement, it is important to prioritise expenditures necessary for survival over lifestyle choices. One must also have a contingency plan for health and the unexpected.

Essential Expenses

To maintain your quality of life in retirement, you must meet the essential cost of living expenses such as housing, utilities, food, and transportation.

  • Housing costs include mortgage or rent payments, property rates, home and contents insurance, and maintenance.
  • Utilities include electricity, gas, water, and phone/internet.
  • Food costs vary depending on your lifestyle and diet.
  • Transportation costs include registration, insurance, petrol, maintenance, and/or public transportation.

Discretionary Expenses

Retirement discretionary expenditures are dependent on personal preferences and lifestyle choices. Travel, hobbies, entertainment, dining out, and luxury items are examples.

  • Travel costs may include overseas holidays, caravanning, cruises, and other recreational travel.
  • Hobbies, entertainment and dining out may include sports, cultural events, restaurant visits, and other leisure activities.
  • Any non-essential or superfluous purchases may fall under luxury items.

Health Care Expenses

As people age, their healthcare needs may grow, leading to higher costs.

Medicare covers doctor visits, hospital stays, and some medical tests and procedures, but other services may need out-of-pocket payments.

Private health insurance can cover Medicare-excluded dental, optical, physiotherapy services, and more.

Prescription medications can be a big healthcare expense for retirees in Australia. Some prescriptions are covered by Medicare and the Pharmaceutical Benefits Scheme (PBS) subsidises others, but some need out-of-pocket payments.

Aged care includes home care, residential care, and respite care. Medicare and private health insurance may not cover these expensive services.

It’s crucial to examine and factor in Australia’s healthcare expenditures while planning your retirement.

Unexpected Expenses

Unexpected retirement expenditures might derail your budget. So you need a plan for them. For example:

  • Retirees may need to mend a leaking roof, replace a damaged appliance, or solve a plumbing issue.
  • Floods and fires have become a prominent issue in recent years and can damage or destroy property unexpectedly.
  • Some retirees may need to help children or other family members with unexpected financial needs.

Estimating Retirement Expenses

There are various ways to calculate retirement expenses. To make sure you have enough money to support your needs during your retirement years, it’s important to take inflation and lifestyle changes into account while developing a retirement plan.

How to Estimate Retirement Expenses

There are several methods for estimating retirement expenditures, including expense tracking, rule of thumb, needs-based approach, lifestyle-based approach, and professional financial planning.

ways to estimate retirement expenses

Expense tracking entails keeping track of your current expenditures over a period of time to estimate your future expenditures in retirement. This expense planner can help you keep track of your current financial situation.

The rule of thumb entails predicting your retirement expenditures as a percentage of your pre-retirement income. For example, budgeting for 70-80% of your pre-retirement income in retirement.

The needs-based approach is estimating retirement expenditures based on predicted needs such as housing, healthcare, transportation, food, and entertainment.

The lifestyle-based approach estimates retirement expenditures whether you desire a comfortable or modest lifestyle, which may include holidays, new hobbies and social activities.

Professional financial planning involves a financial planner who can help estimate retirement expenditures depending on your goals and circumstances. A personalised retirement plan can account for inflation, taxes, and investment returns.

You can also compare your estimate with the Association of Superannuation Funds of Australia (ASFA) Retirement Standard. It provides a comprehensive breakdown of expenses for both a modest and comfortable retirement, for a single person or couple to maintain a healthy, vital and connected lifestyle in retirement.

Inflation and Lifestyle Changes

It is essential to consider inflation and lifestyle changes when creating a retirement plan to ensure you have adequate money to cover expenditures. Here’s why:

  • Inflation can greatly reduce your retirement funds’ purchasing power because prices rise over time. Not considering inflation may cause you to underestimate retirement expenditures and run out of money sooner than intended.
  • Lifestyle changes often affect retirees’ expenses. You may wish to travel, try new hobbies, or downsize. When planning for retirement, don’t forget these changes.

Budgeting for Retirement

A retirement budget estimates income and expenditures during retirement. A detailed budget that accounts for predicted income, expenditures, and lifestyle can help you design a realistic retirement plan that meets your requirements and goals.

Identifying Your Retirement Income

You can create a thorough retirement income plan that satisfies your financial needs and retirement goals by estimating your cost of living and lifestyle, calculating your superannuation balance, taking into account other sources of income, determining your eligibility for the Age Pension, and getting advice from a financial adviser.

Different Sources of Retirement Income

There are several sources of retirement income in Australia, including superannuation funds, personal savings/investments, annuities, age pension, and part-time work.

different sources of retirement incomeSuperannuation Funds

Superannuation, the primary source of retirement income for most Australians, is a mandatory retirement savings scheme, where employers are required to contribute a percentage of their employee’s salary to their nominated super fund. Individuals can also make voluntary contributions to their superannuation accounts either after-tax or before-tax.

Note that most non-concessional (after-tax) contributions are tax-free when withdrawn from your super account. While concessional (before-tax) contributions are taxable when withdrawn from your super account.

Personal Savings/Investments

Personal savings/investments, including cash, shares, bonds, managed funds, and property, can also provide a source of retirement income, especially now that more Australians expect to live well into their 80s.


An annuity is a financial product that can be purchased with a lump sum payment and provides a guaranteed income stream either for a set period or for life. Whilst an annuity is generally considered to be a stable retirement investment option and suitable for someone who doesn’t want to bear investment risk as its value is not affected by the share market; on the flip side you are locking your funds away until the annuity’s maturity and do not get to decide how your funds are invested.

Age Pension

The Age Pension is a means-tested payment from the government that provides income support to eligible Australians who have reached retirement age and meet certain criteria. If a retiree’s income or assets fall between the limits set by the Department of Social Services they may be eligible for a partial pension rather than the full entitlement.

Part-time Work

If you find that you can’t rely solely on a super fund income stream or the Age Pension, you can choose part-time employment to supplement your retirement income, as well as enjoy the benefits of social interaction and the sense of purpose it provides.

This retirement planning calculator can help you work out the income you’ll get and how contributions, investment options, fees and retirement age affect your retirement income.

How Retirement Income Affects Retirement Expenses

Retirement income can have a significant impact on retirement expenses. In general, the greater a person’s retirement income, the more they can afford a comfortable lifestyle and the less they will need to worry about expenses.

If properly planned, it can cover the basic cost of living, fund lifestyle expenses and long-term care, provide flexibility and security, and protect against inflation. This is why it’s important to have a ballpark figure of how much income you’ll need at retirement.

Calculating Your Retirement Expenses

Calculating your retirement expenses is critical to determining how much income you will need to meet your living standards. You can construct a thorough retirement plan that supports your financial goals and helps you afford your retirement lifestyle by carefully calculating your retirement expenses.

How to Calculate Your Retirement Expenses

Planning for your retirement requires you to estimate your retirement expenses. To estimate your retirement spending, evaluate your current lifestyle, future plans, and expected changes. Based on your retirement income and the projected costs, you can figure out your retirement expenses as follows:

  1. Determine your projected retirement income

Begin by estimating your projected retirement income. This could include dividends or interest from investments, sale proceeds from assets, superannuation benefits, and other sources of income.

  1. Calculate your costs

Calculate your projected annual spending during retirement. This may cover costs for food, housing, medical care, travel, entertainment, and any other costs you anticipate. When planning your retirement budget, take into account any potential large changes in costs, such as a possible home downsize or car replacement.

  1. Identify your retirement budget

After estimating your retirement income and expenses, take the difference between the two to come up with your retirement budget. You’ll be able to estimate how much surplus money you can spend on your retirement lifestyle or what your current shortfall is.

  1. Adjust your retirement plan

If your retirement budget is lower than your anticipated spending, you may need to change your retirement strategy. This can entail increasing your savings, putting in more hours at work, delaying your retirement, or changing your planned retirement lifestyle to cut costs.

  1. Review your plan regularly

Regularly reviewing your retirement plan is essential to ensuring that it continues to fulfil your needs and objectives. To make sure that you are on track to meet your retirement objectives when your circumstances change, you might need to modify your retirement plan.

How to Prioritise Expenses

To guarantee that you can maintain your preferred lifestyle after retirement, it is essential to prioritise spending and make necessary adjustments to your retirement plan. The following actions can be taken to prioritise costs and modify your retirement plan:

  1. Identify the spending you cannot avoid paying. These are essential thus they should be your top priority.
  2. Identify costs that can enhance your life but are not necessary for subsistence. These come second.
  3. Anticipate expenditures that may come with ageing and health. Prepare for these either through added savings or insurance.
  4. Create an emergency fund for unexpected costs such as repairs and maintenance, medical emergencies or natural disasters.

funds you'll need to retire

How to Balance Essential and Discretionary Expenses

Financial management throughout retirement and working years requires balancing necessary and discretionary expenses. How to balance these expenses:

  1. Begin by listing your basic expenses, such as housing, food, healthcare, transportation, and utilities. Prioritise these essential expenses.
  2. After identifying important spending, create a budget. This will help you prioritise and cover these monthly expenses.
  3. Next, list your discretionary expenses like travel, entertainment, hobbies, and presents. These expenses are not essential but can enrich your life.
  4. After identifying discretionary spending, develop a budget. This will help you rank and enjoy these expenses without overpaying.

You can make sure that your expenses are balanced and that your finances are on track by prioritising your essential expenses, creating budgets for both essential and discretionary expenses, and frequently reviewing your spending.

Monitoring and Adjusting Your Retirement Expenses

Monitoring your retirement spending and modifying them as needed is critical for a comfortable retirement. By doing this, you can make sure that your spending is within reason and that you have enough money in savings to cover your costs and enjoy retirement without worrying about money.

Managing Your Expenses

It can be difficult to control spending and deal with unforeseen costs, but there are a number of measures that can be useful. Here are some pointers:

Create a Budget

Budgeting is the first step to cutting costs and controlling unexpected expenses. A budget helps you track expenses and identify areas where you can cut back.

Cut Costs

Reduce unnecessary spending by cancelling unnecessary subscriptions, shopping around for cheaper insurance, or upgrading to energy-efficient products for example.

Create an Emergency Fund

Emergency funds might help you handle unforeseen bills. Save three to six months’ living expenses in a separate account.

Prioritise Spending

Prioritise basic expenses including housing, food, and healthcare. Reduce entertainment and dining out as needed.

Consider Downsizing

If you’re trying to make ends meet, consider downsizing your home or car.

How to Account for Lifestyle Changes

A crucial component of financial planning is taking into account how your lifestyle and other factors may change over time. Here are a few tips to help you modify your financial strategy to take into account changes in your life:

Review and Update Your Financial Plan

It’s crucial to assess and adjust your financial strategy as life changes. This involves updating your income, expenses, savings, and investment goals.

Adjust Your Budget

Lifestyle changes impact income, savings, and expenses. Adjust your budget to match your new lifestyle.

Reevaluate Investment Strategies

Marriage, having children, or retiring can greatly affect your investment strategy. Reevaluate your investment plan against your new goals.

Plan for Major Life Events

Buying a house, getting married or divorced, or any of life’s milestone events require careful financial planning. Prepare and budget for these times.

Plan Your Ideal Retirement with Central Coast Financial Planning Group

Retirement planning is important to achieve a financially secure and comfortable lifestyle. This involves evaluating various types of spending, estimating retirement expenses, considering inflation and lifestyle changes, and identifying sources of retirement income.

The end goal is to develop a personalised retirement plan that aligns with your financial needs and goals for a comfortable retirement.

It is crucial to realise that retirement planning is a continuous process that requires monitoring and adjustment as circumstances change. Regularly assessing your retirement plan, particularly your budget and assets, can help you stay on pace to reach your financial objectives.

Thus, it is important to start planning for retirement early and review your plans regularly. Stay up to date on developments in the pension and retirement landscape to make informed decisions that will help you attain a comfortable and financially secure retirement.

Last but not least, seek competent financial advice and use reputable tools and resources such as a retirement calculator to anticipate your retirement

If you want to enjoy retirement with peace of mind knowing there is a financial strategy to take care of the future, speak to the team at Central Coast Financial Planning Group. We help our clients enjoy their dream retirement through personalised financial advice.

Call us or book online to secure your consultation today!




DISCLAIMER: The views expressed in this publication are solely those of the author; they are not reflective or indicative of RI Advice Group’s position and are not to be attributed to RI Advice Group. They cannot be reproduced in any form without the express written consent of the author. This information (including taxation) is general in nature and does not consider your individual circumstances or needs. Do not act until you seek professional advice. Newcastle Financial Planning Group, Central Coast Financial Planning Group, Sydney Wealth Advisers, Coastal Advice Port Macquarie and Coastal Advice Ballina Byron are subsidiaries of Coastal Advice Group Pty Ltd which is a Corporate Authorised Representative of RI Advice Group Pty Ltd, ABN 23 001 774 125 AFSL 238429.
Disclaimer Button
Back To Top