Will you spend less, more, or about the same after you retire?

One of the great mysteries in retirement planning is whether your spending will go down, go up, or stay about same.

A new survey from the Employee Benefit Research Institute offers a few fresh clues. It found 49 percent of retirees reported lower expenses, 13 percent had higher expenses, and 37 percent said their expenses were basically unchanged.

By contrast, a sizable majority of pre-retirees in the same survey (57 percent) anticipated lower expenses when the day came. Either they’re more optimistic about the future cost of living or resigned to a humbler lifestyle once the paychecks stop coming.

Of course, the best way to predict how much you’ll spend after you retire (and, not coincidentally, how much you need to save in the meantime) is to actually run the numbers. The June issue of our Consumer Reports Money Adviser newsletter suggests that would-be retirees:

“... create a retirement budget based on what you currently spend and how you foresee that changing. [Here’s a retirement spending worksheet for that very purpose.] Michael Garry, a certified financial planner in Newtown, Pa., says clients who do that often enjoy the added benefit of finding financial leaks they can plug right away. ‘A lot of people haven’t done a budget in years,’ he says, ‘so they’re sometimes shocked at how much they spend eating out or on different kinds of memberships.’

“In projecting your retirement expenses, consider whether you plan to stay in the same home and if you’ll still be carrying a mortgage. Also take a look at health costs, particularly if you’ll no longer be on an employer’s plan. Bear in mind, for example, that Medicare, great relief that it is in many respects, doesn’t cover most dental bills. While you’re at it, don’t forget to budget for some fun, however you define it.”

Note, too, that your expenses will change over time. Many retirees report higher costs in the early years (due to travel, remodeling, and other pent-up desires), followed by lower spending (once they settle into retirement), and finally, higher expenses again (if costly health issues emerge). 

If you’re close to retiring and want to test your assumptions, try living on your retirement budget before you actually make the move. If it’s adequate, you’re all set. If not, you’ll have some time to regroup. That might mean saving more, lowering your expectations, working a little longer, or some combination of the three.

Any current or prospective retirees with experience in these matters are invited to comment, below.

—Greg Daugherty

Greg writes the “Retirement Guy” column each month in our Consumer Reports Money Adviser newsletter.