Know Your Real Spending

Can I Retire? Series — Part 1 of 12

Here’s a question that separates people who retire confidently from people who spend their final working years anxious and guessing:

How much do you actually spend?

Not how much you make. Not how much you save. Not how much you think you spend. How much actually leaves your accounts every year to fund your life?

Most people can’t answer this within $10,000. Many can’t get within $25,000. And that’s a problem, because this number — your real annual spending — is the foundation of every retirement calculation that matters.

Why Spending Comes First

The retirement industry has trained people to think backwards. They start with income: “I make $150,000 a year, so I’ll need 70-80% of that in retirement.”

This is HR-pamphlet math. It’s wrong for almost everyone.

Why? Because your income has almost nothing to do with what you need. Two people earning $150,000 might have wildly different spending: one lives on $60,000 a year and banks the rest; the other spends $140,000 and wonders where it all goes. Their retirement needs aren’t remotely similar.

The only number that matters is what you spend. Everything else — your savings target, your withdrawal rate, your probability of success — flows from that single input.

Get it wrong, and every calculation downstream is garbage.

The Problem with “I Think I Spend…”

When asked about spending, most people do quick mental math: mortgage, car payment, groceries, utilities. They land on a number that feels reasonable.

That number is almost always wrong — and usually low.

The things we forget to count: the Amazon orders that show up three times a week, the subscriptions we signed up for and forgot about, the “quick” trips to Target, the dinners out that somehow add up to $800 a month, the home repairs, the gifts, the kids’ activities, the trips to the vet, the random medical copays.

None of these feel like “spending” in the moment. They feel like life. But they add up to thousands — sometimes tens of thousands — of dollars per year that never make it into mental estimates.

This is why the only reliable way to know your spending is to measure it. Not guess. Measure.

How to Actually Know Your Number

There are two approaches, and one is dramatically easier than the other.

The hard way: Track every expense for a year. Categorize it. Reconcile it monthly. This works, but almost no one actually does it — and even fewer stick with it long enough to get useful data.

The easier way: Work backwards from your bank accounts.

Here’s the logic: if you had $X at the start of the year and $Y at the end, and you earned $Z in after-tax income, then you spent $Z minus ($Y – $X). That’s it. Income minus the change in your net worth equals spending.

You don’t need to categorize anything. You don’t need to track receipts. You just need two snapshots of your liquid accounts — beginning of year and end of year — and your after-tax income.

Do this for the last two or three years. Average them. Now you have a real number, not a guess.

What “Spending” Actually Includes

When you calculate your spending this way, you’re capturing everything: the mortgage, the groceries, the forgotten subscriptions, and yes — the taxes you pay.

This is important. Your spending number should reflect what it actually costs to fund your life, including the tax bill that comes with it.

But here’s where it gets interesting for retirement planning: some of your current spending won’t exist in retirement. You’re probably still paying into Social Security and Medicare through payroll taxes. You might be maxing out your 401(k). Those aren’t spending — they’re savings and mandatory deductions that disappear the day you stop working.

So your “retirement spending” number is your current spending minus the things that go away: payroll taxes, retirement contributions, work-related expenses, maybe even a mortgage if you’re planning to pay it off.

We’ll get deeper into what changes in Part 3. For now, the goal is simple: know what you spend today, as accurately as possible.

Why This Matters for the Calculator

When you run a simulation on caniretire.app, the very first input is your annual spending. This isn’t decoration — it’s the engine of the entire calculation.

The simulator takes that number and runs it through 99 years of real market history. It adjusts for inflation. It models your taxes. It tests what happens when you retire into the Great Depression versus the greatest bull market in history. It runs thousands of randomized paths to see how often your money survives.

All of that sophistication means nothing if the spending number you put in is a fantasy.

Put in $50,000 when you actually spend $70,000, and the calculator will tell you you’re ready to retire. You’re not. You’ll run out of money, and no amount of Monte Carlo simulation will change that reality.

The calculator is brutally honest, but it can only be as honest as you are with it.

Your Homework

Before you move to Part 2, do this:

Pull your bank and investment statements from the last two years. Note your total liquid net worth at the start of each year and the end. Calculate your after-tax income for each year. Run the math: income minus change in net worth equals spending.

Write that number down. It might surprise you. It might concern you. Either way, it’s real — and real is what we need.

In Part 2, we’ll talk about the things this number doesn’t capture: the big, lumpy expenses coming down the road. The roof. The car. The wedding. The stuff that doesn’t show up in your monthly budget but can wreck a retirement plan if you ignore it.

Next: Part 2 — The Big Rocks Coming