This is a very good question, one I am faced with every day while helping my clients plan for their retirement. At our firm, we have put together a comprehensive expense report. When totaling living expenses, many people just look at the basics; mortgage, power, phone, internet, food, and travel. We try to cover all of the expenses of every day life. Following are a few items that we also look at. Pet care, which can be a big expense depending on how many pets you have and their ages. Personal grooming, just because you have retired does not mean you will stop getting your hair done, buy new clothing, or exercise. Charitable gifts and celebrations generally do not stop due to retirement. The amounts spent might be less, but we are still celebrating birthdays and still being generous to the charities we love.
Health care is often an underestimated expense in retirement. I like to look at what a client is spending pre-retirement and will add ½ extra to that expense. I will take the total of my client’s current expense and add a 3% compounding inflation factor to that total. If I am wrong and overestimate inflation, the client will be better off.
Over estimation of expense in retirement is not a bad thing.

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