Sometimes the goal's annual cost is easy to estimate. Think of your yearly mortgage tab. Annual college costs aren't that tough to tabulate, either: Add together what the average college student pays for the cost of classes, books, and room and board each year, multiply by four (or however many years you think the child will be in school), and you're at least in the ballpark.

Projecting your retirement living expenses is another matter entirely--especially if your retirement is decades away. It involves some dreaming, that's for sure. Ask yourself what type of lifestyle you want. Do you want to spend your retirement building birdhouses in your garage, or do you want to move to South Carolina and play golf every day? The first lifestyle will certainly cost less than the second.

To get a grip on what you might spend, analyze what you currently spend each year, and try to project what those costs will be in retirement. This isn't an exact science. Remember that you're just trying to get your arms around the issue.
Some expenses that will likely change in retirement:

Housing costs. Most of us assume our mortgage will be paid off by the time we retire. That may be true. But what if we take out a line of credit on our home to install that new deck and swimming pool? Or what if we buy a second home in wooded Wisconsin or sunny Arizona? Housing costs don't always decline in retirement. Conversely, maybe we'll sell our homes and move into condominiums that not only cost less, but also require less upkeep.

Health-care bills. For most Medicare-qualifying retirees, health-care insurance isn't exorbitant. A good supplemental insurance plan (to cover what Medicare doesn't) may cost less than $200 per month. But not all plans cover prescriptions. Further, if you retire early and can't continue to participate in your former company's group insurance plan until Medicare kicks in at age 65, watch out. Long-term-care issues, such as living in a nursing home or hiring in-home care, should be accounted for, too.

Recreation. For many of us, retirement is about enjoying the things we denied ourselves while we were raising children or working. And those things--whether traveling across the country in an RV or taking up tennis--cost money. We'll likely eat out more, travel more, and see more movies, plays, and sporting events once we've left the working world. Those tickets aren't free.

Children. By the time most of us retire, our children will be on their own. We hope. Maybe you'll want to help your son with the down payment on a new home. Or maybe your thirtysomething daughter has returned home, forcing you to put off dreams of condo life for a few years. Once a parent, always a parent--so budget like one.

Other items to include in a retirement expense form: transportation costs, which include cars, gas, and insurance; taxes, which, thankfully, should decline for many of us; and those monthly bills for cable television, Internet access, or cellular telephones. It all adds up.

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