How to Estimate Retirement Expenses (Full Category Checklist)

This estimate deserves care because everything downstream depends on it. At a 4% withdrawal rate, every $1,000 of annual spending adds $25,000 to the portfolio you need. Get the estimate wrong by $10,000 a year and your target moves by $250,000 — which is years of saving in either direction.

The FIRE calculation is a single division, and your spending estimate is the numerator:

That sensitivity is the reason to do this properly. The table shows how the target moves with the estimate:

Before building your own figure, it helps to know the national picture. The Bureau of Labor Statistics Consumer Expenditure Survey is the authoritative US source, collected for BLS by the Census Bureau.

Two things are worth noting. First, spending declines with age: the 65–74 group spends roughly $3,900 more per year than the 65-and-over group as a whole, reflecting the tendency for travel and discretionary spending to taper through retirement. Early retirees should generally plan closer to the higher figure for their first active decade. Second, these are averages across all income levels — the BLS also reports that 2024 spending ranged from $35,046 for the lowest income quintile to $150,342 for the highest.

The BLS breakdown of where money goes, across all US households in 2024:

Work through every category below using twelve months of real records. Annual and irregular items are grouped separately because they are the ones monthly budgets consistently miss.

Housing

• Mortgage principal and interest, or rent
• Property taxes — these continue after a mortgage is paid off
• Home insurance; HOA or condo fees
• Utilities: electricity, gas, water, sewer, rubbish
• Internet, mobile, any remaining landline or streaming services
• Maintenance and repairs — a common planning figure is 1% of home value per year

Transportation

• Fuel and charging; vehicle insurance; registration and licensing
• Routine maintenance, tyres, scheduled servicing
• Vehicle replacement — set aside an annual amount even in years you buy nothing
• Public transport, rideshare, parking

Healthcare — the critical section if you retire before 65

• Insurance premiums: employer plan, COBRA, marketplace coverage, or Medicare Parts B and D after 65
• Deductibles, copays and coinsurance
• Prescriptions
• Dental and vision, which are frequently excluded from primary medical coverage
• Long-term care insurance, if you carry it

Food and household

• Groceries; dining out; household supplies and personal care

Discretionary — track this separately

• Travel and holidays; hobbies, sport, club memberships
• Entertainment, subscriptions, events
• Gifts and charitable giving; family support

Irregular and annual costs

• Insurance premiums billed annually; tax preparation or professional fees
• Major appliance and electronics replacement; pet care including veterinary costs
• Home improvement projects

Taxes — still owed in retirement

• Federal and state income tax on taxable withdrawals and other income
• Traditional 401(k) and IRA withdrawals are generally taxable as ordinary income; qualified Roth withdrawals generally are not
• Capital gains on taxable brokerage sales
• Property tax, if not already captured under housing

Once you have a total, divide it into two buckets: spending you could not reduce without a major life change, and spending you could cut in a bad year.

This split is what makes flexible withdrawal strategies possible. A retiree whose spending is 80% fixed has almost no room to manoeuvre when markets fall early in retirement — the situation known as sequence-of-returns risk, where poor returns in the first years do disproportionate damage because withdrawals are coming out of a shrinking portfolio. A retiree with a meaningful discretionary layer can simply spend less for a couple of years and let the portfolio recover.

Usually not — provided you are consistent about it. The standard approach is to work entirely in today's dollars: state your spending estimate in today's prices, and use a real (inflation-adjusted) return assumption such as 7% rather than a nominal one such as 10%. The inflation adjustment is then already embedded in the return figure, and every dollar amount you see stays in today's purchasing power.

The exception worth handling separately is healthcare, which has historically risen faster than general inflation. If you are modelling a long early retirement, it is reasonable to grow the healthcare line at a higher rate than the rest of your budget rather than assuming it tracks the overall average.

With a total in hand, the remaining steps are short:

1. Subtract reliable non-portfolio income. Social Security, pensions, rental income or planned part-time earnings all reduce what the portfolio must fund. Account for the age each one actually begins — Social Security claimed at 67 does nothing for a retirement that starts at 50.
2. Choose a withdrawal rate. 4% for roughly 30 years; 3.5% or lower for retirements of 40 years or more.
3. Divide. Remaining annual spending ÷ withdrawal rate = your FIRE number.
4. Re-run it annually. Spending changes with life circumstances, and an estimate built at 35 will not describe the same household at 45.

A worked version: annual spending estimate $70,000, expected Social Security of $24,000 per year beginning at 67. Before 67, the portfolio funds the full $70,000; from 67, it funds $46,000. Many people size the portfolio for the pre-Social-Security period, since that is the binding constraint — at 4%, $70,000 requires $1,750,000.

For the surrounding framework, see The FIRE Roadmap. For the full calculation walkthrough, see How to Calculate Your FIRE Number. For how the spending tiers map to portfolio targets, see Lean vs Chubby vs Fat FIRE. For the withdrawal-rate research itself, see Safe Withdrawal Rate Explained.