How to Calculate Future Living Expenses

How to Calculate Future Living Expenses
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It costs money to live longer. The longer you live, the more money you will need to support yourself. For this reason, it is important to accurately calculate your future living expenses. While determining your living expenses is one part of the equation, the other (which is one many forget to include) is the rate of inflation. The most popular proxy used to gauge inflation is the Consumer Price Index.

Estimate your current annual expenses. If you want additional income or expect to have higher expenses in the future, add this to your annual expenses. Be sure to include housing, food, health care, insurance, transportation and other incidentals.

Look up the Consumer Price Index (CPI) (see References). This index measures the increase in the cost of commonly purchased items. The CPI is also used to to make cost-of-living adjustments for Social Security.

Click on the "Tables" tab on the Bureau of Labor Statistics web page or click on the link in Resources.

Click on the most recent table. Scroll down to the first table and look for "All Items." Use the current CPI and multiply this number by your current annual expenses.

Perform the same calculation for the following year and the next year. For instance, if the CPI is 2 and your annual expenses are $100,000, multiply $100,000 by 2 percent. The answer is $2,000. This is the increase you can expect from year to year. Revise each year as needed.