Step 2: Estimating your retirement expenses
Once you have completed filling all of the expense item lines, you are ready to begin working on estimating your retirement expenses. In the second column, under the heading Projected at Retirement, begin to identify those expenses that you know will exist in your retirement (Property taxes, Strata fees, Property insurance, Automobile expenses, Family expenses, etc.).
Once you have estimated the expenses that will exist in your retirement, you can now eliminate those expenses that you know will not exist in your retirement (Mortgage payments, Loan payments, Automobile leases, Professional fees, Home office expenses, RRSP Contributions, Savings Contributions, RESP Contributions, Post secondary education expenses, etc.). For each of these line items enter $0.00 in the space provided.
Next you can begin to estimate the expenses that you expect to increase in retirement (Travel costs, Hobbies, Club Memberships, RVing, Boating, Travel Insurance, Restaurant/Concert expenses, etc.). This is the important and fun part of retirement planning.
Note: It is important to have accurate estimates for these retirement expenses as these are often optional activities in retirement and if your financial resources are limited, these expenses might need to be reduced or possibly eliminated. So make a list of your desired retirement activities and prioritize each on your list. If you have a strong desire to travel, then make a list of the top ten destinations you really want to visit. For each trip, rank it in terms of importance for you and identify the time frame you would like to complete the trips within. For example, if you have identified ten separate travel destinations, will you be travelling to all in the first year? Or will you be travelling for the first ten years? In addition, think about how you desire to travel. Will you be taking cruises or will you be backpacking and staying in youth hostels? Once you have identified your travel destinations and your mode of travel, use travel brochures, travel agents and online travel websites to obtain the estimated costs for each trip. After researching your travel costs, try to determine an average expected cost for each trip. This average cost can be used as your estimate for the Retirement Budget Estimator.
Note: The Retirement Budget Estimator provides the ability to create up to three alternative retirement scenarios. If you have not decided exactly what your retirement lifestyle will be, you can analyze different alternatives. For example, will you stay in your current home or sell and move to the family cottage? Will you buy a yacht and cruise the summers away or should you charter the yacht for three weeks every summer? Use the Retirement Estimator to analyze each alternative.