How To Define Your Retirement Cost

Retirement CostIf you have met a financial advisor, you’ll know that the estimation on your retirement cost is really just a rough estimation. The total amount of money you need is probably estimated in the millions. I must admit, it’s pretty depressing when you see that number at a young age. You are also probably not ready to even know how much it can cost you …

The flip side of the coin is that you can always ask your parents, if they are retired, how much they need. If they are financially organized, they can tell you how much they need and where the money is going.

How To Estimate Your Retirement Cost

Fixed Cost Estimation

There is a section of retirement that is very easy to estimate and that’s the fixed cost of retirement. You can use your current cost of living as an estimation. If you are young, use your parent’s estimation as a cost.

  • Mortgage Payments – Hopefully those are done. It’s usually the intention since your income goes down. If you don’t own a home than you’ll have rental payments to make and that can add up to a large amount.
  • Condo Fees – If you own a place with some sort of management, you’ll have a condo fee that you need to include.
  • Property Tax – A fixed annual cost of home ownership.
  • Utility Bill – A fixed annual cost of home ownership.
  • Television & Internet – A fixed monthly cost. Personally, I would find it pretty hard to live without the internet but it can be easy to cut off the television if you were so inclined.
  • Home Insurance – If you own your place, you SHOULD have insurance and it’s another cost added on to your annual retirement cost.
  • Can Insurance – Depending on the number of vehicles, this might add up. Cost of insurance is very different based on your location.
  • Life Insurance – This is a fixed cost but you might not need it anymore but then again, your estate planning might require it.
  • Pet Food – If you have pets, the food is a pretty fixed cost along with vaccination.

Related: How To Review Your Financial Budget

You can use the Financial Budget Google Template I made to help you out assessing your costs. Here is where I am in today’s price. I added a condo fee just in case we decide to downsize. It’s more of a preventive measure. We have a few pets so our cost is higher than others unless you have a really large dog.

Those are the fixed cost and it doesn’t include the following:

  • Groceries – How much will it be for two of you?
  • Restaurants – Will you be eating out more or less?
  • Fuel – How much travelling by car will you be doing? and will your vehicle be gas efficient?

Long Term Fixed Cost

Dividend Snapshot
Here is what my fixed cost looks like with inflation. I kept the inflation slightly lower for the fixed cost as I have not seen it use a 2% or 3%. I have used 1.5%. Non-fixed cost can grow at a faster pace than 2% or 3% though. That table brings me up to age 90 which would be a remarkable achievement based on the life time averages. As you can see, you either need a massive portfolio when you decide to retire if you stop growing it and if your portfolio goes into safety mode. I added the last column to highlight what an income portfolio can do. Since the inflation increases your fixed cost, your required income needs to grow as well but if you are still invested in dividend growers, it can offset the inflation. That’s why I find Dividend Aristocrats a perfect fit due to their track record of increasing dividends.

TimeFixed CostFixed Cost SavingsIncome Focus @ 4%
Year 1$18,879.00$1,512,090.19$471,975.00
Year 2$19,162.19$1,493,211.19$479,054.63
Year 3$19,449.62$1,474,049.00$486,240.44
Year 4$19,741.36$1,454,599.38$493,534.05
Year 5$20,037.48$1,434,858.02$500,937.06
Year 6$20,338.04$1,414,820.54$508,451.12
Year 7$20,643.12$1,394,482.50$516,077.88
Year 8$20,952.76$1,373,839.38$523,819.05
Year 9$21,267.05$1,352,886.62$531,676.34
Year 10$21,586.06$1,331,619.56$539,651.48
Year 11$21,909.85$1,310,033.50$547,746.26
Year 12$22,238.50$1,288,123.65$555,962.45
Year 13$22,572.08$1,265,885.16$564,301.89
Year 14$22,910.66$1,243,313.08$572,766.41
Year 15$23,254.32$1,220,402.42$581,357.91
Year 16$23,603.13$1,197,148.11$590,078.28
Year 17$23,957.18$1,173,544.98$598,929.45
Year 18$24,316.54$1,149,587.80$607,913.40
Year 19$24,681.28$1,125,271.26$617,032.10
Year 20$25,051.50$1,100,589.98$626,287.58
Year 21$25,427.28$1,075,538.48$635,681.89
Year 22$25,808.68$1,050,111.20$645,217.12
Year 23$26,195.82$1,024,302.52$654,895.38
Year 24$26,588.75$998,106.70$664,718.81
Year 25$26,987.58$971,517.95$674,689.59
Year 26$27,392.40$944,530.36$684,809.93
Year 27$27,803.28$917,137.97$695,082.08
Year 28$28,220.33$889,334.68$705,508.31
Year 29$28,643.64$861,114.35$716,090.94
Year 30$29,073.29$832,470.71$726,832.30
Year 31$29,509.39$803,397.42$737,734.79
Year 32$29,952.03$773,888.03$748,800.81
Year 33$30,401.31$743,936.00$760,032.82
Year 34$30,857.33$713,534.69$771,433.31
Year 35$31,320.19$682,677.35$783,004.81
Year 36$31,790.00$651,357.16$794,749.89
Year 37$32,266.85$619,567.16$806,671.13
Year 38$32,750.85$587,300.32$818,771.20
Year 39$33,242.11$554,549.47$831,052.77
Year 40$33,740.74$521,307.36$843,518.56
Year 41$34,246.85$487,566.62$856,171.34
Year 42$34,760.56$453,319.76$869,013.91
Year 43$35,281.96$418,559.21$882,049.12
Year 44$35,811.19$383,277.24$895,279.85
Year 45$36,348.36$347,466.05$908,709.05
Year 46$36,893.59$311,117.69$922,339.69
Year 47$37,446.99$274,224.10$936,174.78
Year 48$38,008.70$236,777.11$950,217.40
Year 49$38,578.83$198,768.41$964,470.67
Year 50$39,157.51$160,189.59$978,937.73
Year 51$39,744.87$121,032.08$993,621.79
Year 52$40,341.04$81,287.21$1,008,526.12
Year 53$40,946.16$40,946.16$1,023,654.01

Variable Cost Estimation

This is where the magic happens in retirement 🙂 You want to enjoy life and you have more time than ever … Eating out and going on vacation is not free and estimating that can be very challenging. If you are not already worried about the numbers you just saw, now you need to add to your fixed cost to include your fun in retirement. I will leave that exercice to you 🙂

Readers: How are you defining your cost for retirement? Are you aware of the potential cost?

Image: renjith krishnan /

4 Responses to "How To Define Your Retirement Cost"

  1. A very good summary. One point though, I think if you’re going to include car insurance & maintenance, you should probably also add a monthly car payment or a small monthly savings for a future upgrade/trade-in.
    Also, a few things we added to our list are:
    – $100/month family cell phone plan for 2 phones
    – $60/person monthly for toiletries/personal care items & expenses (hair cuts, razors, creams, shampoo, tissue, etc)
    – $75/person monthly for clothes/shoes

    Like groceries, these can be pretty variable depending on tastes, but I think it’s pretty reasonable estimates.

  2. Good Article, interesting, and helpful. A timely topic for me as I am trying to make a good estimate on cost of retirement right now. The more details or items one includes the better, but it will always be an estimate.

    What about health care costs? or is that not a factor in Canada? It sure is in the USA

    Thanks for your article


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