Test Drive your Retirement Spending

Though some people end up spending less in retirement than they estimated, odds are you won’t be in this group. So how can you protect your retirement and help ensure that you can stick to your budget?

Here’s a practical answer I recommend: by living the retirement life you plan well before you retire — that is, spending now the way you plan to spend in retirement. If you can’t live according to your retirement budget while you’re still working, there’s a good chance you won’t be able to when you have all day to spend money.

Ideally, you should start thinking about this process 10 years before retirement and, when retirement is five years away, paring your spending every year to bring it in line with your retirement budget.

However, since you’ll still be working, you can’t do that with certain expenses, such as commuter costs, lunches out during the workday and professional work clothes. But on most other forms of personal spending, you can come pretty close and see what it feels like to make the necessary changes. For most people, this means adopting — and accepting — a more modest lifestyle.

One complicating factor is that many workers aren’t aware how much they’re spending before retirement because they don’t keep track. This makes for more heavy lifting to identify expenses and make cuts for retirement budgeting. Any omissions can result in some “oops” moments in retirement. But by living the retirement life pre-retirement, you can identify these lapses in advance and make the necessary adjustments.

Some expenditures are obvious, but adjusting them may nevertheless involve sacrifices that can be unexpectedly painful. Expenditures involving such adjustments may include:

Car payments: If you’re accustomed to getting a new car every few years, you’ll probably have this expense in retirement unless you can make the frugal transition to owning cars longer. So, before you retire, see what it feels like to keep your car a few more years than you have in the past. If your car is leased, either buy it when the lease is up and put more miles on the auto or let the lease go and buy a used car (for cash if possible).

Travel: Many of us like to think about retirement travel, so we project this cost. But some people fail to tone down their travel style for a time when they’ll have less money coming in. If you like to splurge on vacations, such as staying at top hotels, for your next vacation, arrange for more modest accommodations and see how it feels. Otherwise, expanding your travel spending may mean sacrificing in other areas.

Housing costs: Many people leave a more expensive area for a less costly one in retirement — for example, relocating from New York to Florida. But what if you’ve been planning to do this for decades and change your mind, deciding instead to follow your kids from Ohio to California? Or what if you now want to remain in your high-cost state? One way to test for eventualities like these is to pencil out your revised retirement housing budget and save the difference from your original planned housing expense to your new version. This might dictate deeper cuts in other spending to free up cash.

After going through this retirement spending exercise while you’re employed, you’ll have a better understanding of whether you’ll need to make adjustments because you’ve seen what it’s like to live the retirement life.