Budgeting in Retirement: 5 Important Things to Know

Robert Ryerson
5 min readApr 11, 2024

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Photo by Aaron Burden on Unsplash

Planning and saving for retirement is an important component of financial planning, yet more than 40 percent of Americans said they didn’t feel financially secure due to insufficient retirement funds in a 2023 Bankrate survey. Savings goals differ by individuals and their needs, but many retirement experts suggest saving enough so that you can live on 80 percent of your pre-retirement income. This means a person making $80,000 per year retiring at 65 should have saved enough to live off of $64,000 in annual income. Assuming a 30-year, post-retirement lifespan, they would need to have saved enough money to meet their desired income needs, including adjustments for inflation over time, above and beyond any Social Security or pension income they receive, to feel financially secure in retirement.

Of course, there are other factors, such as healthcare and travel plans, that might affect how much money a person needs in retirement. Saving for retirement is also only half the battle. It’s equally, if not more important to be fiscally responsible on a fixed budget, especially if you aren’t able to earn additional income.

If we can think of this multi-year planning process as building a “fiscal house” for retirement, it helps us prioritize and address various risks and goals in a sensible fashion. Below are five important things to know for budgeting in retirement.

How to Create a Retirement Budget

The foundation of your fiscal house for retirement is the protection of a good portion of what you have been able to accumulate, and the creation of lifelong income streams, which will replace the income you used to make from working. Budgeting is critical in retirement as you need to carefully track spending and ensure you have sufficient income streams from which to draw to cover your expenses. Before beginning to plan luxury vacations or make major lifestyle changes, make a list of your income streams and add up how much you expect to earn from these sources, including Social Security, retirement accounts, annuities, real estate, or other assets. Divide this total by the amount of years you expect to live in retirement to get a good idea as to how much you’ll earn every year.

From here, start listing your expenses, separated into the following three categories: essential, non-essential, and seasonal. Essential expenses include groceries, utilities, transportation, and clothing, while non-essential expenses might include travel, subscription services, and gift giving. These should be secondary to essential and seasonal expenses, such as property taxes, holidays, and insurance premiums.

There are several ways to track your spending in retirement, but creating a zero-based budget is one of the best strategies to ensure you’re maximizing every dollar. Once you have figured out your monthly income, subtract your monthly and seasonal expenses from that total. If it’s greater than zero, you can put that extra money to work by paying off debt or planning vacations. If your expenses exceed your income, you’ll have to think about which costs you can afford to cut or if you can increase the yield on your asset base, or if it’s worth picking up a part-time job.

Separate Your Needs and Wants

Deciding what you need in retirement compared to things you want to do is a critical component of creating a zero-based budget. If possible, plan to pay off all your needs, including housing and groceries, with protected sources of retirement income, i.e. Social Security and pensions, or annuities, which function as “private pensions”. These foundational and guaranteed income streams ensure you will still be able to cover these expenses if the market crashes and significantly reduces the purchasing power of your tax-advantaged retirement accounts.

Healthcare and Insurance

Healthcare is one of the biggest expenses in retirement, not only because people generally face more health problems as they age, but also because they’re often without employer-sponsored health insurance. If you retire before being old enough to qualify for Medicare, you will likely have to sign-up for a private insurance plan or purchase a policy via the Affordable Care Act’s Health Insurance Marketplace. Not including long-term care costs, the average 65-year-old retired couple can expect to spend $315,000 on healthcare expenses in retirement, or about $10,000 per year, over a 30 year time frame, according to the 2023 Fidelity Investments Retiree Health Care Cost Estimate report.

In addition to including Medicare and other insurance payments into your monthly or annual retirement budget, you should also leave an estimate for unexpected medical and dental costs.

The 3 Retirement Stages

There are three different stages of retirement, the first of which is the early retirement period, usually between the ages of 62 and 70. During this time, you may need to consider private health insurance for yourself and your dependents, when is the best age to claim Social Security benefits, and if you need a part-time or seasonal job to complement your recurring income streams. This is also when you should think about possibly moving into a smaller space to decrease housing costs.

During the middle stage of retirement, from ages 70 to 80, you might notice a decline in expenses and increase in income as you have to take required minimum distributions from some retirement accounts beginning at 73 years old. There’s also no longer any financial incentive to delay Social Security after you turn 70.

Healthcare expenses, including out-of-pocket costs like deductibles and co-payments, are likely to increase during the final stage of retirement ( after age 80) , so it’s critical to account for this in budgeting. You also might want to reassess your budget during this time, further cutting down on expenses to save more for dependents or considering a reverse mortgage if you need to increase your income.

Working in Retirement

Retiring doesn’t necessarily mean you won’t work again. Many older Americans need to continue working part-time or on a seasonal basis to cover expenses, while others want a sense of purpose or switch industries to pursue their passion-often through volunteer work. According to the U.S Bureau of Labor Statistics, about 8 percent of people 75 and older were employed in 2022, up from 5 percent in 2002.

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Robert Ryerson
Robert Ryerson

Written by Robert Ryerson

Robert Ryerson authored the 2016 book What’s the Deal With Identity Theft?: A Plain English Look at Our Fastest Growing Crime.

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