To find what your expenses in retirement will be, look at the expenses you have now.

Some expenses in retirement will be lower than now. Taxes should go down. Income taxes are usually lower for retirees, and retirees no longer pay Social Security taxes. Contributions to savings and investments usually decrease, since retirees may no longer need to contribute to pension plans or save for retirement. As loans and mortgages are paid up, out-of-pocket housing costs may decrease. Work-related expenses are also likely to decrease, such as dues, transportation to work, work clothes, and lunches.

Some expenses will probably stay the same but may take up a larger share of your income. Utilities, food, gifts and contributions, and car and property insurance costs will stay fairly constant.

Other expenses will increase once you retire. Health care and health insurance expenses will likely increase because retirees may pay for all their own health care insurance until they are 65 and then buy insurance to supplement Medicare gaps after 65. Costs for leisure and entertainment are also likely to increase, since retirees have more leisure time. And if you want to travel, these expenses will take a bigger share of your budget.

Unfortunately, prices won't stay the same from now until you retire. Although inflation has been low in recent years, the cumulative effect of a low inflation rate over many years can devastate a retirement budget.

In order for you to anticipate accurately what your retirement expenses will be, you need to predict what inflation will be. You also need to know how long it will be before you retire.

You may want to choose one general rate to adjust your total retirement expenses. Or, you may want to use different rates for different categories. For example, over the past several years, medical and housing prices have risen faster than food and clothing prices. Overall, however, prices have increased about 3 percent per year for the past several years. Note, however, that the average increase in the Consumer Price Index (CPI) for the past 30 years has been 5.4 percent.

Instructions for projecting retirement expenses:

• Choose the number of years until your retirement starts from the column on the left (subtract your age now from the age at which you plan to retire).
• Select an inflation rate from the row across the top. Inflation cannot be predicted from year to year.
• Read across and down to find the appropriate inflation factor corresponding to your predicted rate of inflation. (Example:10 years and 6% inflation gives a factor of 1.79.)

Your exact future value of investments will depend on the timing of interest payments and investment earnings. However, estimates figured are a good start toward knowing where you stand in your financial preparations for retirement. Use the following instructions to do these calculations:

Instructions for estimating the future value of a nest egg:

• Choose the number of years until retirement or until you plan to begin using the money.
• Choose the average rate of return you expect to earn on this investment.
• Read across to find the factor that corresponds with the number of years and the rate of return. (Example: a 10% return for 10 years gives you a factor of 2.59.)
• Multiply the factor you have chosen times the current dollar value of your nest egg. The result is the estimated value of this investment at your expected return at the time you anticipate needing the nest egg. ($50,000 X 2.59 = $129,500)
• If you wish to continue adding to your nest egg, continue reading to find a way to estimate the future value of additional savings and investments added on a yearly or monthly basis.

After comparing projected expenses to projected retirement income, you may discover a need to add to your nest egg. You can calculate the necessary additional yearly savings by using this information:

• Determine the total lump sum you wish to accumulate by retirement age.
• Subtract from that amount the projected future value of your current nest egg. This gives you the shortfall you need to make up.
• Multiply the amount of the shortfall by the factor that corresponds with your time frame and expected investment return by the dollar amount of the shortfall. This gives you an annual savings contribution needed to reach your target retirement nest egg.

Now, project what your expenses will be in retirement. First list how much you now spend. Next, figure how much you would spend if you were to retire tomorrow. Would it be more, less, or the same amount you are now spending? Now, using the annual rate of inflation, multiply your estimated retirement expenses by the inflation adjustment factor. If you decide to use one rate to adjust all expenses instead of different rates for different expense categories, you can simply multiply the total amount by the inflation adjustment factor.

You may also want to project your income needs 5, 10, or 15 years into retirement. An average 65-year-old is likely to live to age 85, or 20 years of retirement. Of course, if you come from a family whose life spans are well into the nineties, you will want to take this into consideration as well. If you are in good health and not involved in any hazardous activity, you may live well beyond the average man or woman, and you would want to plan for those years.