Home » Preparing for Retirement: How to Build A Retirement Budget

Retirement is a time to kick back and enjoy life at our leisure after decades of working, raising children, and other “adulting” responsibilities. Many people who are coming into their retirement years are concerned with running out of money. They’re uncertain how often or how much they can pull from retirement accounts to make it last.

A retirement budget is the best solution for these worries. It shows you how much money you should have on hand each month while being able to pay for expenditures even if an unexpected medical bill or major repair occurs. Let’s look more closely at how to start preparing for retirement and using a budget to understand our financial situation. 

How to Start Preparing for Retirement

Saving for retirement should ideally start as soon as possible. But as you start getting to preparing for retirement, it’s time to amp up your savings. Make sure to look at all your retirement savings options or look for retirement plan consultants. It includes employer-sponsored retirement plans, IRAs, and health savings accounts.

Work with retirement plan consultants if you want expert knowledge on investments. Your investments should be well-diversified so that your risk is lower when you’re getting closer to retirement. Take advantage of any retirement accounts with catch-up contributions that allow you to contribute more in a given year, and don’t forget to do fund tracking to make sure everything is fine. 

Look for ways to improve your overall financial well-being. This will make you feel more prepared for retirement, and you’ll have more money in your pool of retirement income. Raising your income, reducing your spending, having regular fund tracking, consolidating, and refinancing debt are all ways to increase your financial health.

Steps to a Retirement Budget


Before creating your budget, gather the following documents:

  • Tax returns from last year

  • Last two pay stubs, if you or your spouse is still employed

  • Last six to twelve months of credit card statements

  • Last six to twelve months of bank statements.

Determine Your Fixed Expenses to Start Saving for Retirement

With these documents on hand, figure out what your fixed monthly expenses are. Put them into the following categories:

  • Essential spending - Food, housing, utilities, health care, transportation, etc.

  • Non-essential spending - Cable TV, streaming services, cell phone plans, and other subscriptions

  • Required expenses - These are expenses that don’t happen every month like insurance premiums and property taxes

Health Care Costs

After you retire, you won’t have an employer to help pay for your health insurance premiums. Medicare doesn’t kick in until you are at least 65 years old. Start shopping for plans to get an idea of how much more that will add to your monthly expenses. Dental, vision, hearing care, and medication are also other expenses to estimate how much you need saving for retirement.

The Fun Factor

What’s retirement if you aren’t spending getting to do all the fun things you have time for now. Your discretionary spending could be for something like a yearly cruise, going RVing, traveling, and attending sports events. Figure out what types of retirement activities you want to do and how much you want to spend on them.

Balance your Retirement Lifestyle

With all your expected costs calculated, you can now see how much flexibility you have in your budget. Add up all your fixed expenses and separately total your other expenses. Then divide your fixed expenses into your total expenses to see what percentage of retirement income is going towards your required expenses. 

You may have to adjust your retirement lifestyle if you have large monthly expenses like a house payment. If you want to spend more of your money on the things you want to enjoy, there needs to be a trade-off. For example, you may need to consider downsizing your home and owning one car instead of taking trips overseas a few times a year.
 

What to Do After Retirement


After retiring, you don’t have a steady paycheck, and your budget starts getting put to the test. That’s why it is important to plan on what to do after retirement to handle the change. Be prepared to adjust your budget accordingly, whether you are spending more or less than expected. It’s important to keep it as accurate as possible.

Don’t be tempted to spend money recklessly, even if you have more than expected. That money can easily be blown with a new sports car or an expensive new hobby. Consider a part-time or seasonal job that gives you a little extra and keeps you busy while you still have time for your other activities.  

About the Author

Anjana Paul

Anjana Paul is a banking professional who is passionate about helping others make better choices when it comes to money. In her spare time she is a freelance writer with years of expertise in the financial industry. She primarily writes about topics such as student loans, building credit, budgeting, retirement and other personal finance topics.