How to Plan a Realistic Retirement Budget

Retirement should be a time of reduced stress but if you don’t have a realistic budget in place you could end up causing yourself even more stress than when you were working. No one wants to spend their twilight years stressed over paying bills so getting a budget in place now is key for a happy retirement.

Why Do You Need a Retirement Budget?

One of the most important reasons for planning a budget after retirement is that you will have less stress. To plan a budget, you have to take into account certain factors that affect your retirement income.

They are:

  • Your spending habits
  • Inflation
  • Social Security benefits
  • Pensions
  • Taxes
  • Rate of return on your investments

While considering these factors, know one thing – overspending is an absolute no-no after retirement.

Carefully evaluatng each of the factors in your retirement budget will help you make smart financial decisions today and allow you to enjoy your preferred retirement lifestyle.

Planning Your Retirement Budget

Before you sit down to plan a realistic budget, make sure you have the following things ready:

  • Last 2 paystubs
  • Last year’s tax return
  • Bank account statements for past 12 months
  • Credit card statements for past 12 months
  • Your spouse’s paystubs if you’re married

Along with this, arrange some colored markers along with pen and paper because it’s better to keep them handy even if you’re planning a budget with the help of a computer or mobile app, such as Mint. After gathering your documents, now is the time for real action.

List your fixed expenses:

This will include the cost of food, housing, clothing, healthcare, transportation, etc. It can be essential and not so essential expenses like gym memberships, cable connections, various subscriptions, and so on.

While listing these expenses, make sure you take into account the non-monthly expenses as well such as, insurance premium cost, property taxes, etc. You also have to assign an average cost for food, clothing, transportation, etc. per month.

Plan how to spend your time:

Decide how you’ll spend time and money. Make sure you discuss this with your spouse if you’re married. If you have expensive hobbies, you’ll have to create a room in your budget for that. Moreover, you may also have to curb some of your fixed expenses to assign more for fun and other activities you have been putting off until retirement.

Take into account the healthcare cost:

Researches reveal that on an average, a retired person aged between 60 and 65 has to spend about $1,000 on health insurance premiums. In addition to this, you also have to keep aside dollars for eyes, hearing and dental checkups. You will also want to build an emergency fund for health issues that aren’t covered entirely by insurance and/or Medicaid.

Plan your fun-related activities:

Ideally retirement is the time to roam around and enjoy your golden days. A good rule of thumb is to create a category in your budget for at least two vacations a year.

It is up to you whether or not you want to plan expensive vacations or less expensive adventures. Regardless of which you choose you will have to make a total estimate and divide the amount by twelve months. This will help you set aside some amount monthly for your vacations.

How Much Money Do You Need for Retirment

So now that you have your list of inputs you need to calculate how much money you will need. AARP has some excellent tools for calculating your budget and money requirements.

Tips to make your retirement budget successfulPractice sound money management strategies:

  1. List your priorities and act accordingly. Once you are clear about them, it will be helpful to maintain your retirement budget. You may have to curb some expenses to enjoy others.
  2. Revisit and make modifications if required: Your work is not over just by planning a good budget. Revisit your budget occasionally and make modifications if required. For example, if you’ve planned a vacation and feel that you’re short of some dollars, then you’d have to curb some expenses to save more, and once you’re back from your vacation, you can follow your old budget.
  3. Avoid adding new debts at all costs. Retirement is certainly not the time to invite debt. So, plan your budget carefully such that you’re able to clear your credit card bills at every billing cycle. If you have retired with debts, include them in your retirement budget so that you can pay it off as soon as possible. While planning a budget, give it a priority to make the debt payments. You can postpone a vacation or exchange your car after 1-2 years so that you can be debt free fast.
  4. Downsize your home is required: You may no longer need a big house after retirement. Moreover, smaller homes are easier to maintain and less costly to heat and cool. So, you may consider downsizing to a relatively smaller home or you could rent out rooms if you want to keep your large home. Doing so, you’ll save or earn dollars.
  5. Many people also sell their house and buy a recreational vehicle to move around and enjoy their retirement days. It helps to save a significant amount on housing and gives you the freedom to travel without hotel costs.
  6. Shift to a lower cost locality: Another way to reduce cost at retirement days is to move to a locality where the cost of living is relatively less. Many retired people also move to a state where they can enjoy their lifestyle at a comparatively lower cost.

Have room for unexpected expenses:

No matter how much you budget and plan your financial moves carefully, an unexpected expense can surface any moment. So, make sure you’re ready for it; otherwise, you might have to take out a loan. So, even if you have an emergency fund, it is better to assign some money every month for unexpected expenses such as repairing your vehicle, replacing your furnace, and so on.

In Conclusion

While budgeting for retirement, know that it’s basically the same principals as budgeting when you are working. The only difference is that you’ll have to take into account your retirement income and plan your spending so that you can enjoy your golden days to the fullest.



Phil Bradford

Phil Bradford has immense knowledge on how to tackle personal finance issues. He loves to help people solve their financial problems. Besides analyzing and writing personal finance articles, he loves to cook and travel to places. To contact him you can shoot an email at