This probably comes as no surprise, but most Americans are not prepared for a comfortable retirement. No matter what your age is, it’s never too early to start planning your retirement strategy.  Here are some key steps to help you budget for retirement:

Determine Your Monthly Expenses 

You won’t know how much you’ll be spending in retirement if you don’t know how much you’re spending now and what you’re spending on. Take the time to figure that out with a deep dive into your expenses rather than a cursory glance.

Make sure to include all your bills, whether they’re recurring costs like real estate taxes and insurance premiums; medical costs like dentistry and eye care; or one-time costs like auto or home repairs.

Consider and budget for expenses that may change over time.  For example, you might pay off your mortgage between now and retirement, or spend less on wardrobe and transportation costs when you stop going to work.

When you’re confident you have an accurate monthly expense estimate, multiply that by 12 for your annual expense total. Next, multiply that by the number of years you expect to live post-retirement. This will yield your estimated gross retirement spending amount before taxes and inflation.  (According to the Centers for Disease Control, at age 65, you can expect to live another 19.6 years on average.)

Factor in Taxes and Inflation  

You will almost certainly have to pay taxes in retirement, unless Social Security is your sole source of income.  This is especially important if you have rental properties, or if the bulk of your retirement income will come from investments outside of a retirement plan.  Estimate taxes based on where you live, which typically starts at 25% and can go up based on your total taxable income and where you live.

You’ll need to account for inflation, which normally runs about 2% per year, but can also fluctuate greatly based on various market conditions.

Tally Income Sources 

After you know how much you expect to spend, calculate your income from Social Security using the SSA website, pensions, part-time employment, and retirement account distributions.

We recommend using an online calculator to determine how much you should save each month to reach your retirement goals.

Compare Expenses with Income 
Compare your total expenses with your total income from all sources. If the numbers show a deficit because you expect to spend more than you’ll have, consider changes that include:
Working longer to earn and save more
Taking a part-time job during retirement to supplement your retirement income
Spending less
Consider a reverse mortgage to supplement your income

It’s never too soon to calculate retirement spending so you know how much to save and how long you’ll need to keep working. A little planning now can prevent big surprises later.