As Brian and Bob have so ably noted, having an accurate estimation of the future value of your 401k account is critical to planning a successful retirement. As someone who spent 25 years helping clients plan for retirement, I define success as the ability to support the standard of living you desire with safe and steady income for the remainder of your life, and the remainder of your spouse’s life, if you have one.

Although that may seem obvious, I can tell you that most people I worked with found it difficult to measure what a successful retirement might cost. And success is a personal measure. For some it means affording to play golf three days a week, while to others it means never having to ask their children for financial support.

But regardless of what a successful retirement means to you, the harsh reality is that happiness comes with a price tag. An axiom of retirement planning is that you should expect your expenses in retirement to be about 70 percent of what they are while you are working. That may be a useful starting point, but as an estimate of any one person’s retirement needs it can be grossly off the mark.

And while it’s true that in retirement you forego the costs associated with commuting to a job, buying work clothes, and buying lunch at the local deli five times a week, the offsetting truth is that in retirement you gain about 50 hours per week of additional free time to do other things. Some of those things, like visiting the public library or visiting community parks, cost nothing. Others, like joining the local country club, can end up costing much more than your work-related expenses.

None of us can predict the future, but we can shape the future so that it fits our vision of a successful retirement. By that I mean if you have a pretty good idea of how much income you can expect in retirement, then you can begin working towards a lifestyle right now that can be sustained by that level of income.

In order to do so it helps to translate that estimated amount of gross income into the equivalent of “take home pay,” since that is what most employed people have to work with as a budget. One bit of good news is that your income tax rate should be considerably less in retirement than while working. One reason is that withdrawals from a 401k and other qualified retirement accounts are taxed as ordinary income and not earned income. That means no FICA withholdings, which for most folks is about 15 percent of their pay (and for self-employed workers it can be twice that!).

Of course, in retirement you will no longer have money withheld for benefits such as healthcare, insurance or contributions to your 401k plan. The bottom line is this: While working, most people only take home about 60 percent of their gross pay, in retirement they net closer to 80 percent of their taxable income.

That means your gross income in retirement could be 20 percent less than your salary while working, yet your after-tax net income could be exactly the same. And depending on where you live, you may also get a break on your property tax if you own the property you are living in. Depending on the value of your house, that could be worth a few thousand dollars of additional “income” each year.

Once you have made those adjustments you should have a pretty accurate estimation of your budget in retirement. By the way, that’s the easy part. The hard part is figuring out exactly how much of that money to assign to each of the major expense categories.

For most people the single biggest budget item in retirement is housing in the form of either a mortgage payment or rent. Add in costs related to home ownership – maintenance, insurance and property tax – and it can end up being much more expensive than renting. For that reason I caution my clients to think hard about what form of housing is the best fit for their budget.

A report released last year by the Social Security Administration showed housing represents 35 percent of expenses, followed by transportation (14 percent); out-of-pocket health care (13.2 percent); food (12.3 percent); entertainment (5.1 percent); and apparel (2.6 percent).

It wasn’t that long ago that healthcare was a standard retirement benefit for long time employees of large companies; not any more. Most companies have either greatly reduced their subsidy of retiree healthcare premiums, or eliminated them. Combined with escalating healthcare costs, you need to know exactly how your medical bills are going get paid in retirement.

Currently, Medicare healthcare benefits kick in at age 65 for eligible participants. However, it’s no secret that the GAO is advocating for that number to get pushed up closer to age 70, if not higher. Personally, I do not believe it is politically feasible to increase it that much all at one time so I’m expecting Congress to compromise at age 68 or thereabouts. Even so, if you plan to retire earlier than that then you may end up with a healthcare premium the size of your mortgage payment. Plan accordingly.

Most other recurring costs aren’t much different in retirement as they are when you are working. Generally speaking, most people spend about the same amount of money on groceries, utilities, and general living expenses at all ages. So, since you know what those numbers are now you should be able to estimate them very accurately in retirement.

That leaves the so-called “discretionary” expenses, such as travel, entertainment, and anything else that isn’t really necessary for your survival. Unfortunately, those tend to be the things we want the most! However, if you have followed the steps I have outlined above you should have a pretty good idea of how much money will be available to fund these types of activities.

Like almost everything else in life, budgeting in retirement is a matter of making trade-offs to achieve the optimal allocation of your resources. The bigger (and more expensive) the house, the smaller the travel budget, and vice versa. That said, after helping thousands of clients budget for retirement I have arrived at some basic truisms (all figures are monthly, and in today’s dollars):

1)      Unless you are okay with living in a very small and not very nice dwelling in the middle of nowhere, plan on spending at least $1,000 on total housing costs at a minimum;

2)      No matter how much couponing you are willing to do, most folks spend several hundred dollars on groceries, plus eating out at restaurants a couple times a week, so figure about $500 on food and drink;

3)      Utilities will cost you at least another $300 if you plan on watching the television, talking on a smartphone, and not relying on chopped wood to heat your house in the winter;

4)      You’ll probably have a car, so there’s another couple hundred dollars in gas, maintenance, and repairs.

So, we’re already up to $2,000 and we aren’t having any fun yet. You should also add in another $500 for clothes, healthcare (assuming you are fully covered by Medicare or some other plan) and other incidentals, so at the very least you will need about $2,500 to cover your basic costs of living.

As an example, if the retirement calculation you performed indicates about $4,000 of total income in retirement in today’s (inflation-adjusted) dollars, you can now begin to back into how much luxury you will be able to afford. Assuming you net 80 percent of that after taxes leaves you $3,200 to work with. Subtract out the $2,500 figure we arrived at above and you have about $700 to spend on whatever it is that makes you happy.

At this point you may be feeling a bit despondent, as that may not be enough to support the lifestyle you have in mind. However, one bit of good news I can share with you is that my happiest retired clients are the ones that define happiness in non-material terms. They value friendships, experiences, and enlightenment more than cars, boats and country club memberships.

If you can make that critical distinction in retirement then living within a budget should not be difficult. The trouble begins when you commit to a lifestyle that requires a level of expense that leaves no margin for error. The temptation is to achieve higher portfolio returns through riskier investments, thereby setting the stage for a personal financial crisis the next time the market moves against you.