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When people begin preparing for retirement, one of the first questions we ask is simple: How much do you actually spend each month? You would be surprised how often the answer is inaccurate.
It is not because people are careless. In fact, it is often the opposite. Many of the most detail-oriented clients (we love our engineers!) show up with carefully constructed Excel spreadsheets outlining their projected retirement expenses. Everything is categorized. Everything is tidy. Everything looks reasonable.
Then we compare that spreadsheet to their actual income and tax return, and something does not add up.
Building Your Honest Budget
I recently met with a family who told me they could comfortably live on $7,000 per month in retirement. They were in a strong position financially with no mortgage, most of their debt paid off, and they had done a good job saving. On paper, $7,000 per month seemed realistic. On an annual basis, that’s $84,000 per year.
But when we reviewed their most recent tax return, their income the previous year was $185,000.
If they only need $84,000 per year to live, where did the other $100,000 go?
That question is not meant to criticize but to clarify. Their Excel spreadsheet did not account for the difference. It did not clearly show where that extra money had been spent. And that gap is exactly where retirement planning can go wrong.
The Problem with Spreadsheet Budgets
Most spreadsheet budgets rely heavily on estimates and memory. They require you to manually enter transactions and categorize spending. Even disciplined people miss things. Subscriptions, travel, gifts, home repairs, “one-time” purchases that seem to happen every year—all of it adds up.
When you rely solely on a manually maintained spreadsheet, small inaccuracies compound over time, you end up believing your lifestyle costs less than it actually does. That becomes dangerous when you are about to replace a paycheck with retirement income.
A More Accurate Approach
If you are within a few years of retirement, one of the most valuable steps you can take is to track your spending directly from your spending accounts.
That means using a budgeting tool that links to your bank account and automatically pulls in transactions. Tools like YNAB(You Need a Budget) or Dave Ramsey’s EveryDollarallow you to see exactly where your money goes each month without relying on memory. When you connect a budgeting app to your checking account, nothing falls through the cracks. You are no longer estimating. You are measuring.
Many people are surprised by what they discover when they track spending this way. The numbers are often higher than expected—not because of reckless spending, but because of normal life.
If you want the clearest picture possible, simplify your cash flow while you are measuring it. Use your checking account consistently. Rely on your debit card. Avoid splitting expenses across multiple credit cards while you are trying to get accurate data. The goal is not restriction; it is clarity.
Why This Matters So Much
Retirement income planning only works if the spending number is correct. If you underestimate your monthly expenses by $2,000 or $3,000, that can significantly affect how much you need to withdraw from your retirement accounts. It can impact your tax strategy, your investment plan, and the overall sustainability of your retirement.
You do not want to retire thinking you can live on $7,000 per month, only to discover a year later that your true spending is much higher. Before you step into retirement, make sure you know your real number.
That clarity allows you to make better decisions about Social Security timing, withdrawal strategies, and how much you need in reserves. It also gives you confidence, because your plan is built on reality and not estimates.
If you would like help reviewing your income and spending before you retire, we are happy to walk through it with you.
This material is intended for informational/educational purposes only and should not be construed as investment/tax advice, a solicitation, or a recommendation to buy or sell any security or investment product. Please contact your financial professional for more information specific to your situation.
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