Retirement is a new chapter where you control your time, set priorities, and choose how to spend your days. To enjoy this freedom, you need a clear plan for your finances.
For many, preparing for retirement feels like a shot in the dark: save as much as you can and hope it’s enough. That’s understandable. Retirement planning can feel overwhelming with so many unknowns. How much money will you actually need? How much income will you have each month?
Creating a retirement budget turns guesswork into action. Even if retirement is years away, a budget gives you a clear picture of your financial future, reduces stress, and helps you make informed decisions.
Why Your Retirement Budget Can Make All the Difference
A retirement budget helps you track income, plan expenses, and maintain your lifestyle. It ensures you can confidently say yes to the experiences you want, without worrying about running out of money.
A retirement budget helps you:
- Track your monthly retirement income
- Plan for big expenses such as travel, home projects, or healthcare
- Protect your savings from market swings
- Maintain your lifestyle year after year
Starting early gives you more flexibility, but there’s no wrong time to begin. Even five years before retirement, or today, taking a close look at your numbers pays off.
Step 1: Map Out Your Retirement Income
Start by identifying all sources of income. These may include:
- Social Security benefits
- Pensions or annuities
- Withdrawals from retirement accounts such as IRA, 401(k), or Roth accounts
- Investment income from dividends, interest, or stocks and bonds
- Rental or part-time work income
Many experts recommend planning for roughly 80% of your pre-retirement income to maintain your lifestyle. Working with a financial professional can help you design a withdrawal strategy that accounts for taxes, required minimum distributions, and market fluctuations.
Step 2: Separate Must-Haves from Nice-to-Haves
Before budgeting, think about what retirement will look like for you. Will you spend your days relaxing at home, or traveling to new destinations? Writing down your retirement goals helps you forecast which expenses may increase and which may decrease.
Classify your expenses into fixed and flexible categories:
- Fixed expenses: housing, insurance, healthcare, utilities, property taxes, and ongoing debt
- Flexible expenses: travel, dining, hobbies, gifts, and charitable giving
A smart approach is to use guaranteed income, such as Social Security or pensions, to cover your fixed costs. Then, allocate variable income, like investment withdrawals, toward your flexible spending. This balance keeps your budget stable and your lifestyle intact.
Step 3: Plan for Healthcare Costs
Healthcare can be one of the largest retirement expenses. Couples may spend more than $300,000 on medical costs over their retirement, not including long-term care.1
You can prepare by:
- Opening a Health Savings Account (HSA) if eligible. Contributions grow tax-free and withdrawals for qualified medical expenses are tax-free. After age 65, you can use funds for other expenses, taxed as income.
- Budgeting for supplemental insurance, prescriptions, and out-of-pocket costs.
- Reviewing healthcare expenses annually to ensure they align with your plan.
Step 4: Factor in Inflation and the 4% Rule
Over decades, inflation can reduce purchasing power. Even moderate inflation can reduce purchasing power over 20–30 years. Include 2–3% annual inflation in your retirement budget to ensure your lifestyle keeps pace with rising costs.
How you withdraw funds from your retirement accounts affects how long your money lasts. The 4% Rule provides a starting point. Withdraw 4% of your portfolio in the first year, then adjust annually for inflation.
This approach helps you balance spending today with long-term security.
Step 5: Keep an Emergency Fund
Even in retirement, unexpected expenses appear. Home repairs, medical bills, or urgent travel can require immediate funds.
Keep 6–24 months of living expenses in a liquid account. Using this fund for surprises prevents you from withdrawing from long-term investments at the wrong time.
Step 6: Review and Adjust Regularly
Your retirement needs and priorities may change over time. Review your budget annually to reflect shifts in income, expenses, or lifestyle goals. A flexible plan keeps your finances aligned with your evolving retirement.
Step 7: Decide When to Retire
Compare your projected monthly income to your estimated expenses. If they align, you’re financially ready. If not, explore strategies to save more or adjust your retirement timeline.
Mission Fed Perspective
At Mission Fed, we provide tools and resources to help you build a smart retirement plan. When your finances are clear, your possibilities expand.
Even if retirement feels far away, starting your budget today gives you peace of mind and puts you in control. And if you want guidance along the way, Mission Fed can help with a complimentary financial review to make sure your plan is on track.
The content provided in this blog consists of the opinions and ideas of the author alone and should be used for informational purposes only. This information is not intended as financial, tax or legal advice. Consult a qualified financial and/or tax advisor. Mission Fed Credit Union disclaims any liability for decisions you make based on the information provided. References to any specific commercial products, processes, or services, or the use of any trade, firm, or corporation name in this article by Mission Fed Credit Union is for the information and convenience of its readers and does not constitute endorsement, control or warranty by Mission Fed Credit Union.
