One of the most common questions I hear from clients approaching retirement is: "How much will I actually spend each year?" It's a deceptively simple question with a complex answer, because retirement expenses don't follow a straight line. They shift, evolve, and sometimes surprise you in ways that working years never prepared you for. This article will walk you through what commonly happens with expenses in retirement and how to project expenses in a way that works in the real world. The Myth of the 70% Rule You may have heard the old rule of thumb: you'll need about 70% of your pre-retirement income to maintain your lifestyle in retirement. Like most rules of thumb, it's a decent starting point but often misleading in practice. Some expenses do drop significantly. You're no longer contributing to retirement accounts. Commuting costs disappear. Work wardrobes become optional. If you've paid off your mortgage by retirement, that's another major reduction. But here's what the 70% rule doesn't account for: healthcare costs often double or triple, you finally have time for travel and hobbies you've been postponing, home maintenance projects you've been deferring often become priorities with more time spent at home, and some may be helping adult children or aging parents financially. For many of my clients, especially in the early active years of retirement, spending in the early years of retirement is above 100% of pre-retirement levels, largely due to increased healthcare costs and spending on discretionary items like travel in the early years of retirement. Expense reductions, if any, often don't occur until much later in retirement. The Three Phases of Retirement Spending Research shows that retirement spending typically follows a pattern across three distinct phases, and understanding this can help you plan more accurately. The Go-Go Years (Ages 65-75):  This is when most retirees are healthiest and most active. Travel peaks during these years. You're finally checking items off that bucket list. Spending on experiences, dining out, and entertainment tends to be highest. Many clients are surprised that their spending actually increases in these early years compared to their final working years. The Slow-Go Years (Ages 75-85):  Activity levels naturally moderate. Travel becomes less frequent and less adventurous. Entertainment shifts more toward local activities. However, this is also when healthcare costs begin climbing more steeply. Overall spending may decrease slightly, but the mix changes significantly, with healthcare taking up a larger percentage. The No-Go Years (Age 85+):  Mobility limitations mean less spending on travel and activities, but healthcare and particularly long-term care expenses can increase overall costs depending on how much you were spending on discretionary items like travel prior to reaching this stage. For some, the long-term care phase can be most expensive phase of retirement. For others, decreased mobility and travel results in a drop in overall expenses even if long-term care is needed. Your retirement plan needs to account for these shifting patterns rather than assuming a flat spending rate for 30 years. Inflation: The Silent Budget Killer Here's a sobering thought: at a 3.5% average inflation rate, prices double every 20 years. That $8,000 monthly budget you carefully calculated at retirement? It needs to be $16,000 in purchasing power by age 85 just to maintain the same lifestyle. This is why having inflation protection built into your retirement income plan is critical. But inflation doesn't hit all expenses equally, and this matters more than most people realize. Healthcare costs have historically inflated at 5-6% annually, well above the general inflation rate. The same prescription that costs $50 today might cost $135 in 20 years if healthcare inflation continues at historical rates. On the other hand, some expenses like mortgage payments (if you have a fixed-rate loan) don't inflate at all. Property taxes and insurance do inflate, but often at different rates than general inflation. This is why I encourage clients to break down their budget into categories and think about how each category might be affected by inflation differently. Your healthcare costs might need a 6% annual increase assumption, while the principal & interest payment on your fixed-rate mortgage may not inflate at all. Building Buffer for the Unexpected One of the biggest mistakes I see in retirement budgets is that they're built too tightly. Every dollar is accounted for, allocated to specific categories, with no room for life to happen. But life always happens. The roof develops a leak. The car needs replacement earlier than expected. A child goes through a divorce and needs temporary financial support. A grandchild's wedding conflicts with a pre-planned trip, and you want to do both. Your spouse develops a health condition requiring modifications to your home. These aren't emergencies in the traditional sense, but they're also not part of your monthly grocery and utility budget. I call them "lumpy expenses," and they're one of the most under-planned aspects of retirement. Here's how to build proper buffer into your retirement budget. First, identify your baseline essential expenses: housing, utilities, food, insurance, healthcare, and transportation. This is your non-negotiable spending. Next, add your desired lifestyle expenses: travel, entertainment, dining out, hobbies, and gifts. This is what makes retirement enjoyable. Then, and this is the critical part, add a buffer category of at least 10-15% of your total budget for one-off expenses and surprises. This might seem like a lot, but track your actual spending for a few years and you'll see how often these items pop up. Some of my clients prefer to think of this as a "big purchase" fund. They budget $10,000-15,000 annually for items like major home repairs, vehicle replacement, helping family members, or unexpected medical expenses not covered by insurance. Some years you won't spend it all, but other years you'll be grateful it's there. The Pennsylvania Factor For my Pennsylvania clients specifically, there are some local considerations worth planning for. Property taxes in many PA counties continue rising, and while the state doesn't tax retirement income, those property taxes can take a bigger bite out of your budget than expected. The elimination of school property taxes has been discussed for years but hasn't materialized, so don't count on it in your planning. Healthcare costs in the Philadelphia suburbs and surrounding areas also tend to run higher than national averages. If you're planning to age in place in the Main Line or Bucks County, factor this into your healthcare budget assumptions. Creating Your Personal Expense Projection Here's a practical approach to building a realistic retirement expense budget. Start by tracking your current spending for at least three months, ideally a year. Many people are shocked by what they actually spend versus what they think they spend. To track spending, major credit and debit card providers have spending reports within their online access portals. This can make tracking spending fairly simple. Then, identify which expenses will decrease in retirement: retirement contributions, commuting costs, work-related expenses, mortgage (if it will be paid off), and potentially income taxes depending on your situation. Next, identify which expenses will increase: healthcare and insurance costs before Medicare, potential long-term care insurance, travel and leisure activities, and possibly gifts and family support. Add new categories that may not exist now: gifting to family or charities if this is important to you, potential costs of relocating and increased taxes if you're moving to a state with higher retirement income tax, and increased home maintenance if you age in place. Apply different inflation rates to different categories. I typically suggest 5-6% for healthcare, 3-4% for general living expenses, 2-3% for housing if you own your home, and 4% for discretionary spending like travel. Finally, build in that 10-15% buffer for lumpy expenses and the unexpected. The Bottom Line Retirement expense planning isn't about finding one perfect number. It's about understanding how your spending will evolve over potentially 30+ years and building enough flexibility into your plan to handle the changes. The couples who thrive in retirement aren't necessarily those who saved the most. They're the ones who understood their expenses realistically, planned for multiple phases of retirement, protected themselves against inflation, and built enough buffer to handle life's surprises without derailing their plans. Your retirement budget should be a living document that evolves with you. Review it annually, adjust for actual spending patterns, and don't be afraid to course-correct when needed. After all, the goal isn't to have the perfect budget. The goal is to have the financial confidence to enjoy the retirement you've worked so hard to achieve. _______________________________________________________________________ If you're within 5-10 years of retirement and want help building a comprehensive expense projection that accounts for all these factors, that's exactly what we specialize in. We can help you understand not just how much you need, but how your spending will likely evolve across all phases of your retirement. Want To Discuss This Individually? 1 - For clients: Call or email me any time as always. 2 - For non-clients: Complete the form on the website to request a retirement planning consultation: www.rolekretirement.com This is article is for informational purposes only and should not be considered as tax or legal advice. Advice is only provided after entering into an Advisory Agreement with the Advisor. See other disclosure here: Disclosures