WHETHER YOUR RETIREMENT IS TWO YEARS or two decades away — and even if you’re already in it — you probably spend a fair bit of time dreaming about what you’ll do with your leisure time. Visit the major national parks in the U.S.? Buy a cottage at the beach? Get serious about shoring up your golf game? Take gourmet cooking lessons?

Whatever form your vision of fun in retirement takes, there’s one thing you probably haven’t spent much time thinking about: how much your leisure activities will cost. “The cost of leisure over the course of your retirement can come as something of a shock for retirees,” notes Merrill Wealth Management Advisor Mary Jo Harper. She recalls two clients, a couple on the East Coast, who as they neared retirement had prioritized frequent travel with their daughter and grandchildren who lived in Texas. But once they got a sense of what the expenses might really be, they realized they’d have to recalculate.

“We prepared by padding their travel and leisure budget for the first couple of years of retirement,” says Harper. The husband also opted to continue working part-time to fund their travel — including a trip to Mexico with the grandkids.

Their story illustrates the adjustments you may need to make in order to enjoy your life in retirement without depleting your savings, says Ben Storey, director, Retirement Research & Insights, Bank of America. The key, he stresses, is a sensible strategy for drawing down assets. “It’s important to make sure you’re allocating your financial resources thoughtfully, so that you can enjoy some of the things you couldn’t do during your working years.” As you work with your advisor to determine how to make the most of your retirement income, addressing the following questions can help.

What will your income and expenses be in retirement?

Begin the process by listing your anticipated expenses as well as your sources of income in retirement, which might include pensions; retirement accounts such as 401(k) plans, IRAs and annuities; Social Security; savings; and a business. Then look at your anticipated expenses, dividing them into buckets — day-to-day expenses associated with your desired retirement lifestyle (food, housing, healthcare, hobbies) and other important or aspirational expenses (paying for college, traveling, purchasing a vacation home, giving to causes you care about). Leisure spending is generally considered aspirational.

Day-to-day expenses will require predictable sources of retirement income, because most are not optional and it’s unlikely you’ll be able to reduce them substantially. After you have a strategy for covering those, move on to the other category. You’ll probably have more flexibility in the costs for the important or aspirational items on your list and when you’ll need the money. Remember, too, that some costs, for things like commuting and clothing, might decline.

Once you’ve done that, your financial advisor can help you align your resources and investments with each of the buckets, Storey says. When investing for aspirational items, for instance, you may want to take on more risk than you might for the expenses you need to cover every day. And keep in mind that taxes are going to take a chunk out of your income. “We look at our retirement accounts and just say, for example, ‘I have $1 million,’” Storey says. “We don't say, ‘Actually, I have about $750,000, because 25% is going to go toward taxes.’” Pre-retirees often underestimate the taxes on distributions from tax-deferred accounts like traditional IRAs and 401(k)s, he notes. Your advisor can work with you and your tax professional to help you determine how much and when to withdraw from each account in order to minimize taxes while allowing the remaining funds to continue their potential for investment growth.

How much will you need for leisure spending?

Next, create a rough estimate of what you think your leisure activities are likely to cost (for a look at the potential price tag of some common leisure activities, see the slideshow above). Your expenses are likely to change over the course of retirement, with leisure spending decreasing over time, Storey notes. According to the U.S. Bureau of Labor Statistics Consumer Expenditure Surveys, average out-of-pocket healthcare spending rises with age, while transportation, clothing and entertainment spending all decline.⁷

Nevertheless, there’s a good chance you’ll end up spending more time and money on leisure than you anticipated — at least in your early retirement years, Storey notes. “You have to replace the social aspect of work, and many people don’t realize the importance of these social connections until they retire.” That can mean costs you didn’t count on. “Traveling to see friends and family, going out to dinner, attending concerts and theater — all these things keep you connected to people, but can be costly,” Storey says.

What trade-offs might you need to make?

After you and your advisor have crunched the numbers, you may find yourself coming up short on funding for your projected leisure budget. You have several options. Ask your advisor whether downsizing your home or relocating to a less expensive area could help free up more of your budget. If your leisure activities are driven by social considerations, look to experiences that are relatively inexpensive but can be just as rewarding — joining a gardening club, hiking with friends on a local trail, throwing a dinner party at home. “You can entertain at home for a fraction of the cost of dining out, and it probably offers you an even better opportunity to engage with family and friends,” Storey says.

You can also fund your leisure needs by working part-time in retirement — or delaying it for a few years. Storey notes that besides earning additional income, this option can allow you to continue work you enjoy and maintain social connections. And while you’re putting away the additional income, you can draw less out of your retirement accounts, or even leave them untouched, if allowed, so that they can potentially keep growing. He cites the example of an airline pilot he knows who, after retirement, took on part-time work as a flight instructor. As well as adding to his income, the job enabled him to spend more time flying — which would otherwise have made for a very expensive hobby.

Leisure expenses can take you by surprise, particularly in the first few years of retirement, says Harper. But you don’t have to let them limit your fun. “When it comes to retirement priorities, the heartstrings tend to be stronger than the wallet. If you think through what you want to do and plan ahead, you’re likely to find it easier to achieve your goals.”