How much do you actually spend in a year?
It's one of the toughest questions around your wealth, and most people are further off than they expect. Almost every other answer in your plan depends on this one.
How much can I spend? is one of the seven questions we hear most, and it can't be answered until you know what you spend now.
So: how much do you spend in a year? Not what you earn. Not what you save. What actually leaves your accounts.
Most people are further off than they expect, and that includes people who run companies and read financial statements for a living. It isn't carelessness. While you earn more than you spend, the extra quietly covers every error, so nobody ever needed the exact figure.
Then the paychecks stop, and the extra isn't there.
The short answer. Take your total outflow over the last two or three years, not a typical month times 12. A month misses the big irregular costs. Then split that total into what you must spend and what you choose to spend. The split matters more than the total.
If you want a sense of how households actually distribute spending across categories, the Bureau of Labor Statistics has measured exactly that for decades in its Consumer Expenditure Survey. It is a useful cross-check on your own figures, though it describes the average household rather than yours.
Why this one number decides everything else.
Nearly every answer in your plan sits on top of your spending.
Will your wealth last? Depends what you withdraw. What do you withdraw? Depends what you spend. How much room is there for a Roth conversion? Only what's left after spending. Can you retire two years early, help your children, buy the second home? Same question underneath.
Get spending wrong and every one of those answers is wrong with it, because the error repeats each year for thirty years.
It's the one figure where precision genuinely pays. It's also the one people most want to skip.
Where people get it wrong.
Two patterns cause almost all of it.
The costs that never show up in a month. Property taxes. Insurance premiums. Tuition in two big chunks. A roof. A car. The trip you take every other year. None of it appears in a normal month, which is exactly why a typical month multiplied by twelve understates the year.
Estimate from a typical month and you will land low. Every time.
Assuming retirement spending is today's spending minus commuting. Some costs fall away. Others arrive. Health coverage before Medicare, which is the line people underestimate most. Fidelity's 2026 estimate alone is $185,500 for a single 65 year old, and that excludes long term care. More travel in the early, active years. Care costs later, possibly. Housing may change. And supporting adult children rarely stops just because your paychecks did.
The split that actually tells you something.
A single number tells you very little. Two households spending the same amount can be in completely different shape.
What matters is dividing it in two.
- Must spend. Housing, insurance, health coverage, taxes, food, commitments already made. This continues whatever markets do.
- Choose to spend. Travel, dining, gifts, the things you'd trim and still recognize your life.
This answers what people are really asking when they ask whether they have enough. Not "will I run out," but "what would I actually have to give up, and when?"
A plan that covers your must-spend from steady sources, with the choose-to-spend funded by assets that rise and fall, is far sturdier than one with the same total and no line between them.
It also makes a bad market much less frightening. You already know which items are the cushion.
What replaces a budget once you retire.
While you're working, cash flow runs itself. Money arrives, some is saved, the rest is spent.
In retirement that mechanism disappears, and something has to take its place.
What works is a spending policy rather than a budget. You decide once, calmly, how much comes out each year, which account it comes from, and what would make you change it. Then you hold a year of must-spend in cash so no bad market week ever forces a sale.
The point isn't restriction. Most of our clients could comfortably spend more than they do. The point is that a decision made in advance is one you don't have to make during a bad month, when you'd make it worse.
Nothing here sits on its own.
This is where the number stops being an accounting exercise. Your spending sets your withdrawals, your withdrawals set your taxable income, your taxable income decides what tax planning is available, and what's left over is what reaches your family.
Pull one of those and the others move. That's why we build one plan rather than a set of separate recommendations, and it's the reasoning behind how we work.
What to do this week.
- Pull the last 24 months from every account and add up what left. Don't categorise yet, just get the total.
- Divide by two. That's your real annual figure, and it will probably surprise you.
- Go through it once and mark each item must or choose.
- Ask what the must-spend total looks like if you stopped working next year.
An afternoon of work, and it turns every other question in your plan from a guess into arithmetic.
Then the useful questions become answerable, in order: which account to draw from first, how much bracket room you have, and what your portfolio actually needs to produce. It's also why we don't hand anyone a fixed percentage of the portfolio and call it a plan.
No two households produce the same answer here, which is rather the point. If you'd rather know your number than estimate it, let's talk.
Common questions.
- How do I work out what we actually spend?
- Take total outflow across the last two or three years rather than a typical month multiplied by twelve. A month misses the costs that arrive once or twice a year, and those are exactly the ones people leave out. Then split the total into what you must spend and what you choose to spend.
- Why does the split matter more than the total?
- Because the total tells you how much you need and the split tells you how much flexibility you have. Two households spending the same amount are in very different positions if one could reduce spending by a quarter without changing anything that matters and the other could not. Flexibility is what lets a plan survive a bad year.
- Which costs get left out most often?
- The ones that never appear in a normal month: property taxes, insurance premiums, tuition in a couple of large payments, a roof, a car, the trip taken every other year. Health coverage before Medicare is the single most underestimated line for anyone retiring early.
- Do I need to keep a budget in retirement?
- Not in the sense of tracking categories. What replaces it is a spending figure you trust and a rule for what happens when markets fall, decided in advance. The point is not discipline; it is not having to make a large decision under pressure.
- Why do people who run businesses get this wrong too?
- Because while you earn more than you spend, the surplus quietly absorbs every error, so nobody ever needed the exact number. It is not carelessness. The figure only starts to matter at the moment the income stops, which is the moment it becomes hard to establish.
