In retirement, your paycheck is replaced by a mix of income sources, and many costs change. Some expenses, such as commuting, may drop. Others, such as health care and travel, may rise. A simple budget helps you see whether your income covers your spending and how long your savings may last.
Step 1: List your income
Write down how much you receive each month, after taxes and deductions, from:
- Social Security, after your Medicare premiums are taken out.
- Pensions or annuities.
- Regular withdrawals from retirement accounts such as IRAs and 401(k)s.
- Part-time work.
- Rental income, interest or dividends.
Some income, such as investment returns, can vary. Use a conservative estimate.
Step 2: Track what you spend
For two or three months, write down everything you spend, or review your bank and credit card statements. Group your spending into categories:
- Housing: rent or mortgage, property taxes, homeowners insurance, HOA fees, repairs.
- Utilities: electricity, gas, water, phone, internet.
- Food: groceries and eating out.
- Health care: premiums for Medicare, Medigap or other plans, plus prescriptions, copays, dental, vision and hearing costs.
- Transportation: car payments, insurance, gas, maintenance or transit fares.
- Insurance: life, long-term care or other policies.
- Personal and family: clothing, gifts, hobbies, travel, pets, donations.
- Debts: credit cards and loans.
Step 3: Plan for irregular expenses
Many budget surprises are not really surprises, just costs that do not come every month. Add up the yearly cost of items like:
- Car repairs, registration and new tires.
- Home maintenance and replacing appliances. Many planners suggest setting aside about 1% to 2% of your home's value each year.
- Property tax and insurance bills paid once or twice a year.
- Dental work, hearing aids and glasses.
- Holidays, birthdays and travel.
Divide the yearly total by 12 and set that amount aside each month.
Step 4: Compare and adjust
Subtract your monthly spending from your monthly income. If you have money left over, decide how to use it, such as building an emergency fund or paying down debt. If you are short:
- Look for savings on fixed costs, such as insurance, phone and internet plans and utilities.
- Check whether you qualify for programs that lower costs, such as Medicare Savings Programs, Extra Help or property tax relief.
- Consider part-time work or adjusting when you take withdrawals.
- Talk with a trusted, fee-only financial planner about your options.
Step 5: Review regularly
Review your budget once a year, for example in January when your Social Security amount and Medicare premiums change, and after any big life change. Read the 2027 Social Security COLA to see how your income may change.
Helpful tools
The Consumer Financial Protection Bureau offers free budgeting worksheets. Many banks offer free tools that sort your spending into categories. A simple notebook works just as well.
Keep an emergency fund
Even with a solid budget, unexpected costs happen. Read why you still need an emergency fund in retirement.
