What's the Most Realistic Way to Build a Retirement Budget?

Often-cited research may be overly rosy

When formulating a financial plan, can you count on spending less in retirement than you do during your working years?

The conventional wisdom is that you’ll certainly spend less, especially if your home is paid off and tuition obligations are behind you. But the key question is: How much less?

A 2005 study by a fellow named Ty Bernicke argued that the average 75-year-old spends 50% less than the average 45-54 year old. Because it was such a surprisingly large figure, this study is frequently cited. But others have criticized Bernicke’s methodology and believe that he is presenting an overly rosy picture.

What’s the solution? In my view, the best starting point for estimating a retirement budget is to work from your budget during your working years. Then go through your spending categories and make adjustments. While that might sound tedious, I believe the result will be far closer to reality than these very general studies. And there are plenty of tools that can make the task far easier. Among the most popular are YNAB and Monarch Money.