How to Create a Retirement Budget

The good news is that Americans are living longer and are, for the most part, healthier than previous generations. On the other hand, this means that you’ll need to be much more strategic about how you spend your retirement savings. Tracking and managing your money has always been critical to maintaining your financial health. While retirement affords you the flexibility to do all those things you always wanted to do, you also need to be sure you don’t spend all your money in the first few years. For this, you need to create a retirement budget.

Below are some actionable tips to help you create a realistic budget.

Your Budget Outline

1. Begin by determining your fixed monthly expenses.

  • Mortgage (include taxes and insurance)
  • Utilities
  • Transportation

2. Next, calculate essential but flexible monthly expenses.

  • Groceries
  • Clothing
  • Subscriptions

3. What is your estimated retirement income?

  • How much is in your pension accounts?
  • What will you receive monthly from social security?
  • How much is sitting in your retirement accounts? (401(k), IRA)
  • Will you be receiving dividends from investment accounts?
  • Do you expect to have outside income, such as consulting, teaching, speaking engagements, or writing books?

At this point, you’ll have a rough skeleton of your monthly retirement budget.

Healthcare Expenses

Research data suggest that the average 65-year-old today who lives the entire length of his lifespan will spend more than $189,000 to cover medical care during his retirement years. For women, who typically live longer, the amount is estimated to be $214,565. These estimates assume routine medical expenses, excluding costs associated with long-term care.

Healthcare costs are one of the leading causes of financial hardship for retirees. You’ll want to make this a priority when you create a retirement budget.

  • Estimate your routine health care costs, including any medications, and factor this into your monthly budget.
  • Read up on your Medicare benefits to learn which services will be covered and which will come out of your pocket.
  • Include your monthly health insurance premium. Be sure to shop around to find the most affordable plan with maximum coverage.
  • Do everything you can today to maintain a healthy lifestyle.


All withdrawals from your retirement savings accounts, other than your Roth account, are taxable. A portion of your social security benefits, depending on your income, will also be taxed once you start drawing down. The IRS provides updated tax bracket spreadsheets to help you determine a workable estimate. Include your estimated or current tax payments in your monthly budget.

Monthly Debt Expenses

You’ve already included your mortgage payments in your retirement budget, but do you have other debt?

  • Consumer loans?
  • Credit cards?
  • Students loans (for your children, grandchildren, or yourself)
  • Small business loan

Don’t forget to include these items in your retirement budget. Try to shift as much disposable income as possible to get rid of personal loans and credit card debt.

Once you’ve plugged in all of the above expense and income figures, you’ll have created a workable retirement budget. Now it’s time to think about how you want to spend your retirement days and what that will cost.

Retirement Lifestyle Expenses

Make a list of all the fun things you would like to do, such as,

  • Travel
  • Family vacations
  • Learning

Come up with an annual expense and divide by twelve. Plug this into your monthly retirement budget. It’s not an expense that will go out every month, but you’ll know how much you need to save to cover the cost of activities.

Bottom Line

A retirement budget is crucial even if you don’t have any desire to travel around the world or take up new hobbies. You want to live comfortably without worrying about paying for groceries or covering your medical expenses. Creating and following a retirement budget will bring you peace of mind and help you build a financially healthy future.