How to Make a Retirement Budget

Facing retirement without a plan or knowing how to make a retirement budget is risky. If you take this risk, you’re headed into what is supposed to be a happy, relaxing period of your life that you worked hard to earn, and you’re doing it not knowing how long you’ll be able to make ends meet. A path like this can take the joy out of retirement, replacing it with unnecessary stress and struggle. There is an easy way to avoid this, though, and that’s by creating a retirement budget to ensure that the bills will still get paid while you kick your feet up and enjoy your golden years.

The good news is that developing a retirement budget isn’t as difficult as it may sound, and the payoff is immeasurable. It takes a little bit of time and effort, but what you put into it now pays off exponentially when the time comes to end your career and live your life exactly as you want to. A comfortable retirement budget is your key to a restful retirement that you can truly enjoy. Let’s take a closer look at how to plan a retirement budget.

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Why is a Retirement Budget Important?

There are so many factors that will affect your retirement income, and ultimately, how to make a retirement budget that will work for you. These factors include your retirement time frame, how you commonly spend your money, what savings you have behind you, and more. When we retire, most of us do it for the first time. That means we have no experience with retirement, which leaves us highly susceptible to unknowns. A realistic retirement budget can help you prepare for the inevitable surprises that come with inexperience. A reasonable retirement budget is also an effective way to stave off the stress of not having a plan. We all worry about money, and budgeting takes some of that worry away. Less stress means better health and a longer, happier retirement.

Knowing how to make a retirement budget and planning for your retirement can also help you prepare for and reduce the amount of taxes you may pay out, leaving more for your quality of life. A clear and concise strategy will help you see the bigger picture, which can aid in your understanding of what is and isn’t possible before spending money you may need. Planning your retirement as soon as possible expands the picture you can see to help you make sound decisions. Finally, the typical budget for retired couples helps ensure the financial burden of meeting your necessities doesn’t fall on loved ones. Your relationships benefit from reduced worry, as does your health and quality of life. Simply put, learning how to make a retirement budget and developing one early can be the determining factor in a longer, happier retirement.

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First, Estimate Your Current Income and Expenses

Now that we’ve established that creating a sound retirement budget is necessary for our well-being, we need to know where to start and how to create a retirement budget. The most straightforward place to begin is to gather information on all of your current incoming and outgoing funds. This information is the key to understanding where you stand so that you can create a realistic retirement budget. To gather these details, you’ll want to access your bank statements as well as detailed credit card statements. Your pay stubs will come in handy here, and previous tax returns are also a source of helpful information. If you have online payment accounts such as PayPal or Stripe, you’ll want to collect your income and expenses on those platforms as well.


To get the most accurate picture possible, you’ll need to include every source of income you have, including gifts, tax refunds, inheritance, work pay and more.


You’ll be able to sort out your expenses using your monthly bills and bank/credit statements. Breaking down your outgoing expenses into monthly, non-monthly, essential and non-essential will give you a clearer picture and enable you to make a retirement budget more efficiently. Let’s clarify what these different categories are for:


Monthly Essential Spending

Knowing your monthly essential spending is crucial to successfully knowing how to make a retirement budget. Monthly essential spending is, as the name suggests, a category for expenses that you cannot avoid and pay month to month. These are important factors in the average budget for retired couples. They are your necessities; the expenses that put a roof over your head and food in the fridge. They also tend to be the most predictable with many of them coming in at the same amount each month, or within a close range. Monthly essential spending are the expenses you expect and center your monthly budget around. Included in this category of spending are expenses such as:

  • Rent/mortgage
  • Utility bills
  • Food and grocery
  • Medicine
  • Fuel
  • Insurance
  • Pet care
  • Credit card payments
  • Loan payments
  • Child care/education
  • Clothes and toiletries

This list also includes any other essentials that you pay for each month. Monthly essentials will vary from person to person, so use this list as a starting point but don’t expect your retirement expense budget to look identical.


Non-Monthly Essential Spending

Non-monthly essential spending can easily be forgotten while making up your budget as these expenses are less frequent than monthly expenses and aren’t always top of mind. These are irregular expenses that only come up a few times per year and pay for items and services that your lifestyle necessitates. They can be difficult to plan for but like other irregular expenses, you can use estimates based on past expenses in each category. Planning for these essential but irregular expenses that only happen once in a while means you’ll be ready when they come up and they’ll fit into your budget. No one is exempt from non-monthly essential spending, and these expenses pop up for all of us. The important thing is to be prepared so you won’t need to worry about them as much. Here are some examples of non-monthly essential spending:

  • Property taxes
  • Insurance
  • Auto maintenance and repairs
  • Home maintenance and repairs
  • Tech support and repairs
  • Medical expenses
  • Mental health expenses
  • Education
  • Pet care

Your bills, bank and credit statements from the past year will clarify what you spend in these categories.


Non-Essential Monthly Spending

Non-essential monthly expenses are the bills and payments you make each month that you could live without. For instance, if you’re the type of person who picks up takeout from time to time or who loves to go see a movie in the theater every weekend, you’re spending money on non-essentials. We all have non-essentials and there is no need to feel bad about spending on the activities and goods that make us feel great. That’s why these expenses should always be included in what to consider for how to make a retirement budget that truly provides for your quality of life. Think about the following items:

  • Streaming subscriptions
  • Movies, concerts and other forms of entertainment
  • Dining out
  • Alcoholic beverages
  • Skiing, boating and other sports
  • Pottery, gardening, painting and hobbies like these
  • Interior decorating

Include anything else that falls into this category for you. You can easily skim over your bank and credit statements and get some idea of the average amount of money you spend each month on these items.

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Estimate Your Retirement Income

Estimating your retirement income may not come easy to you right away, because it’s hard to know what you’ll need when you’re no longer working and you’ve never experienced retirement before. However, a good practice is to take stock of all your savings and investments. Consider all forms of income in retirement, from 401(k)s and IRAs to annuities and company funded pension plans. Using all of these sources of income, work out what you might be receiving each month. This may be lower than your current income, which is normal. Keep in mind that some expenses shrink, while others may become more costly in retirement. For instance, you may downsize your home and pay less for housing, but you may pay more in medical bills and medication. Without a daily commute to work, you might need less for fuel and you might spend more on your hobbies. A good estimate for the income you will need is to aim for 70% of the income you made before retirement. This is a good target but it might require you to cut back spending in some categories to accommodate the reduction.

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Use Your Current Financial Situation to Understand How to Budget For Retirement

In the previous section, we briefly touched on the idea that expenses may change a little bit in retirement. To begin a good retirement budget, however, we need to start with our current financials. Taking a close look at how we spend our money today can help us to see how we might spend it in retirement and how it might differ. For instance, your housing expenses might change in retirement because you’ll have paid off your mortgage by then. You might downsize to one vehicle instead of two, and maybe you’re skiing 4 times per season instead of every weekend. Try to anticipate how some of the current costs in your budget might change once you’re not headed to work everyday and your kids have moved out. There’s no real way to be perfectly accurate when making these estimations, so this step is intended to provide you with a broad picture of what your expenses in retirement might look like.

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Map Out a Retirement Budget, Spending Plan, and Try It On

Now that you’ve got a clear understanding of your incoming and outgoing funds, it’s time to throw together a plan that fits into these parameters. Budgeting apps are everywhere and you can find one that works for you on your computer, tablet or smartphone. Spreadsheets or a good old fashioned legal pad and some ballpoint pens are just as acceptable. Your budget should total up your retirement income sources as well as your expected expenses. You can then compare the totals. In a perfect budget, your expenses will have a much lower total than your income. However, this is not often reality. You may find your expenses exceed your income, and that means you’ll have to take a look at your expenses again and identify places where you can cut spending. You may need to consider how to make a retirement budget that is more frugal.

Once you have your budget worked out, take it for a spin. It’s easier to “try on” a new budget when you don’t need to and the stakes aren’t as high. Test your budget for at least a month, so you’re meeting all of your regular expenses. Only use the income you expect to be making in retirement and spend the way you expect you might as well. If you have leftover money from your test drive, put it in savings for retirement. Get an idea of how your retirement budget feels and how realistic it is and adjust as you learn.

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Typical Retirement Budget Example

Let’s get visual so we can really hammer home what we’ve learned so far about creating a budget for retirement. Here is a simple example budget for a retired couple:


Income

  • 401(k) - $2000 per month
  • IRA - $1000 per month
  • Annuity - $1000 per month
  • Total - $4000 per month


Expenses

  • Housing - $1100 per month
  • Vehicles - $400 per month
  • Food - $400 per month
  • Utilities - $300 per month
  • Health/Medical - $400 per month
  • Hobbies - $100 per month
  • Entertainment - $200 per month
  • Pet care - $100 per month
  • Insurance - $200 per month
  • Repairs/Maintenance - $200 per month
  • Total - $3,400 per month


In this example budget, there is a surplus of $600 each month, which can be set aside to pay for unexpected expenses that are bound to arise. Monthly expenses may fluctuate but this gives you a general idea of what’s coming in and what will be going out. The average retirement budget will differ from our example, but it will use the same method.


Your budget will differ from this one, as well, and it might take some maneuvering to get it to a comfortable place, so it’s much better to do it now than to wait until you are retired. Get a head start and plan for those days and your future self will thank you. If you’re already retired, budgeting after the fact is still infinitely better for your financial stability than not budgeting at all.

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Additional Retirement Budget Considerations

Of course we don’t all want to retire and stay home, and some of us want a retirement that looks a little bit different than others. Perhaps you plan to do all the globetrotting you couldn’t do when you were working a 9-5. Maybe you want to sell your house and buy an RV and travel the country. Maybe you plan to cultivate your garden and sell your harvest at farmer’s markets, bringing in some extra income. The point is, your retirement belongs to you and is going to be unique and reflect who you are. As such, you may want to consider some variables for how to make a retirement budget that could apply to your unique situation. Extra income may be earned from selling your pottery for instance, or perhaps your medical costs will start to rise from ailments that affect those who’ve worked hard for a lifetime. The cost of travel you may want to do is a variable that will affect your retirement budget as well as a collection of pristine 1960s Ford Mustangs that you’ve restored. Don’t skip out on considering your irregular and uncommon expenses and income just because they’re not normal monthly expenses. Be sure to include everything in your budget for the clearest picture of retirement possible.

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How Everdays Can Help You With Retirement Planning

Planning for retirement can be overwhelming and it can be hard to know where to start. It seems like there are so many different factors that we can’t really get a handle on until we’re in retirement. This can make it feel as though the budget we’re creating is just a big guess, which leads to stress and worry and reduces our quality of living. That’s where Everdays can help. Sign up for your free, online account, and you’ll be guided through the process of planning for your future on a platform that was made for young seniors like you. With the aid of Eva, your helpful planning assistant, your Everdays account takes the guesswork out of how to make a retirement budget, and helps you create an accurate view of your future quickly, so you can get back to the things that matter the most to you. Our goal is to alleviate the stress of retirement planning and get you back to living life with a solid plan in place.

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Start Your Free Plan Today

Get started planning your budget for retirement today by signing up for your free account with Everdays. Your peace of mind is a simple click away and in no time, you’ll have a good, solid plan for your future. Sign up today!

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The Everdays mark and the Everdays logo are registered trademarks of Everdays, Inc.
* This app is owned and operated by Everdays, Inc., a Delaware corporation doing business in California as Everdays Moments Insurance Marketing.

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© 2022 Everdays, Inc. All rights reserved.

The Everdays mark and the Everdays logo are registered trademarks of Everdays, Inc.
* This app is owned and operated by Everdays, Inc., a Delaware corporation doing business in California as Everdays Moments Insurance Marketing.