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How to budget for retirement

Retirement Budget: Here’s How You Can Make It Work

Updated on February 2, 2023

 Personal Finance

Budgeting can give you peace of mind and minimize stress about money in any phase of your life. One of the biggest mistakes most retirees make is spending their money too much too soon. Before they know it, all their funds have dwindled. Carefully putting together your budget will keep you from making unnecessary expenses.

Whether you're about to retire or are already a retiree, making a budget and sticking to it is vital. A carefully planned budget shows your retirement readiness and helps you manage your money, so running out of money will never be your concern.

With a few simple steps, you can create a sound budget that allows you to take care of your obligations and enjoy your retirement life simultaneously.

Why Having A Retirement Budget Matters

Budgeting for retirement has various factors. Inflation, rate of return on savings and investments, your retirement date, taxes, spending, part-time earnings, Social Security, and pensions can affect your retirement income.

These factors may be overwhelming, but you have the most control over how you spend your retirement money. Sure, you may have so much to check off items on your bucket list, but it is never okay to overspend at this point since there is too much risk involved. So to be safe, you must make your savings last as long as possible.

You may think you deserve it after having worked so hard for so long by traveling, taking up some hobbies, and more —but think again. Coming up with a detailed budget will help you live within your means, have fun, and never worry about funds running low at old age.

Determine Your Fixed Expenses

You may begin by putting together your bank account and credit card statements for the last six to twelve months, the final two pay stubs if you are still employed, and the previous year's tax return.

Determine your recurring monthly, quarterly, or annual payments. You may divide your expenses into the following categories:

Basic Expenses

These include the essentials such as food, clothing, housing, utilities, transportation, and health care. These are expenses that you can never go without.

Secondary Expenses

These include expenses you are billed for monthly, like cellphone plans, streaming services, gym membership, and other subscriptions.

Mandatory Periodic Expenses

These include property taxes, insurance premiums, auto registration, and home warranties you are billed for periodically. You may add these up and divide them by 12 to come up with the monthly cost to include in your retirement budget.

Using a computer spreadsheet to account for the timing of expenses will make this process simpler and faster.

If your monthly utility bill runs an average of $300, put $300 in each monthly column. If you are into giving Christmas gifts, divide the amount you plan on spending in two and put half each in November and December. You may do this for each expense, then find the monthly sum. These are your fixed expenses.

Health Care Costs

After retirement, you might pick up the tab for health insurance premiums that your employer used to shoulder. You will need to explore the available options for health care if you retire before age 65. You may go on and shop for plans now to add an estimated amount you can add into your monthly budget.

Dental, vision, and hearing care must also be added to your monthly budget. You may estimate other health expenses like maintenance medication to have a complete picture when developing your retirement budget.

Having Fun is Necessary

Travel, treating your grandchildren, hobbies, and other forms of entertainment need to be factored into your retirement budget. These are all part of discretionary spending which allows you to be flexible and experience the fun stuff. Figure out how much you are willing to spend on fun activities, then include them in your budget. Just remember, keep it all within your means.

It is necessary to consider how your hobbies and lifestyle may change because this directly affects how you spend. If married, it's much better if your spouse does the same thing.

Compute Fixed Versus Flexible Costs

At this point, you have put together all your projected costs. You may compute how much is fixed and how much is flexible, then total them separately and divide your fixed expenses into your total payments.

How much will your retirement income go toward fixed expenses? Ask yourself if this aligns with how you want to spend your time in retirement. If you have significant monthly obligations for a house or other payments, maybe a lifestyle change is a sound move.


As a general rule, if you want to enjoy your retirement fully, make it a goal to lower your fixed expenses so you can be more flexible when spending on the activities that make you the happiest. Make sure to budget everything so as not to overlook and compromise either one of your health, wealth, and life in total.

David Owens

David Owens

David Owens is a seasoned content writer specializing in finance - debt management, entrepreneurship, and business finance.

When not writing, he travels with his cat, Mellie.