How to Create a Retirement Budget That Works

Ah, retirement is when you finally get to enjoy all those hobbies you never had time for and take long, leisurely vacations without worrying about returning to work. But wait, before you start planning your dream retirement, have you thought about how you will pay for it? That’s right; the golden years can quickly turn into the “uh-oh” years if you don’t have a solid plan in place.

Fear not, dear reader, because, with some budgeting know-how, you can create a retirement budget that works and ensure you have plenty of funds for all those rounds of golf and endless cups of coffee at the local diner.

So how do you make a retirement budget that works?

#1 Start by calculating your retirement income.

The first step in creating a retirement budget is determining how much income you will have during retirement. This includes any retirement accounts you may have, such as a 401(k), IRA, or pension plan, as well as any Social Security benefits you will be receiving. 

#2 Determine your monthly expenses.

Next, it’s time to whip out that calculator and figure out how much moolah you’ll need to cover your monthly expenses. Yes, you read that right; we’re talking about math! You don’t need to worry; it’s not that scary. Just grab a cup of joe (or a glass of wine, we won’t judge) and get ready to crunch some numbers. This includes everything from housing and food to healthcare and entertainment. It’s important to be as accurate as possible when estimating these expenses, so take the time to review your bills and receipts to get an idea of your spending.

#3 Identify any new expenses that may arise.

In addition to your regular expenses, some new expenses may arise during retirement. For example, you may want to travel more, take up a new hobby, or spend more time with your family. Be sure to factor these expenses into your budget so you have a realistic understanding of how much money you’ll need.

#4 Consider inflation

Inflation can greatly impact your retirement budget, so it’s important to consider it when creating your plan. Historically, inflation has averaged around 3% per year, so you may want to assume a similar rate when estimating your expenses for the future.

#5 Determine your retirement savings withdrawal rate.

The retirement income and expenses you have determined are now a good starting point. Now it’s time to do some more math (yay!) and figure out how much money you can safely remove from your retirement savings each year. It’s like a game of financial Jenga – you want to take out just the right amount without causing the whole thing to come crashing down. Don’t worry; we’ll show you how to make sure your retirement savings stay nice and sturdy, no matter how many blocks you pull out each year.

One of the best ways to keep all those Jenga blocks from toppling is to use what is known as your withdrawal rate, it’s typically expressed as a percentage of your savings.

There are different opinions on the safe withdrawal rate, but a commonly used rule of thumb is the 4% rule. This means that you can withdraw 4% of your retirement savings in the first year of retirement and then adjust that amount each year for inflation. So, for example, if you have $500,000 in retirement savings, you could withdraw $20,000 in the first year of retirement.

Some recommend a 3% rate. The percentage you decide to withdraw should factor in your savings before retirement, your portfolio’s expected growth rate, and your life expectancy.

#6 Review and adjust your budget regularly.

Creating a retirement budget is not a “set it and forget it” kind of deal. Life is unpredictable, and your expenses and income will inevitably change over time. Maybe you’ll decide to take up skydiving (hey, you only live once!), or perhaps you’ll inherit a small fortune from a distant relative. Either way, reviewing and adjusting your budget regularly is important to ensure you’re still on track to meet your retirement goals. Think of it like doing maintenance on your car – you wouldn’t drive for years without getting an oil change or a tune-up, would you? (If you said yes, please don’t tell your mechanic.) So, schedule another coffee break to review your retirement budget every year. Your future self will thank you.

#7 Don’t forget about taxes.

Finally, let’s talk about everyone’s favorite topic: taxes! (Cue the crickets chirping.) Yes, even in retirement, you may still need to pay taxes on your income. But don’t worry; we won’t get too technical here. Just remember to factor taxes into your retirement budget so you’re not caught off guard by a big bill from Uncle Sam. And if you’re thinking about dipping into your retirement accounts to pay for that fancy yacht you’ve had your eye on, beware of the tax implications. Tax rules and regulations can make you want to hide, so it is important to consider hiring a tax professional. They can help you find all the hidden deductions and credits, like that one for owning a pet giraffe. (Okay, we made that up, but it’s worth looking into, right?)


In conclusion, creating a retirement budget may not be as exciting as planning your dream vacation or picking out the perfect golf clubs, but it’s a crucial step in ensuring that you can actually afford to do all those fun things. So, instead of burying your head in the sand and hoping for the best, take the time to create a budget that works for you. And who knows, you may even surprise yourself with how much you can save by cutting back on those daily lattes and skipping the fancy restaurant meals. Hey, every penny counts when you’re living your best-retired life!

If you feel overwhelmed by the above, then consider hiring a financial expert (one that is a fiduciary). They can help you create a budget and estimate what a safe withdrawal is. On top of that, they can make sure your money grows even in retirement. Oh, and you know those budget reviews? They do them for you. Most financial advisors do bi-annual reviews to make sure your retirement plan is working for you.