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How To Create A Retirement Budget

How To Create A Retirement Budget

August 20, 2022

How To Create A Retirement Budget

Retirement is assumed to be when you begin to have maximum rest from work. But that time doesn't come without financial responsibilities. Without a detailed retirement budget, you may run out of money sooner or later. Unfortunately, this is something you wouldn't want to experience at a time you are supposed to be resting and enjoying your life.

Regardless of how much you earn now, your income will likely decrease when you retire. Depending on your income bracket, social security can only replace around 40% of your pre-retirement income. Interestingly, maintaining your desired standard of living during that inevitable time requires careful planning outside of just social security.

Why You Need A Retirement Budget

If you are above 65 years of age, you'll need a higher level of financial prudence since you have less time for retirement planning. Younger people may have more time, but starting early enough will give you a firm foundation to make maximum use of your limited resources. Below are some benefits of creating a retirement budget, irrespective of age.

Benefits of Creating A Retirement Budget

  1. Better control of your finances
  2. Maintain your desired standard of living
  3. Take advantage of retirement tax benefits
  4. Lower stress levels and healthier life
  5. Avoid becoming a burden to your children
  6. You can give your grandchildren special treats
  7. Properly managing credit card and personal debt
  8. Being prepared for any expense of retirement

How Much Should I Budget For Retirement

For millions of Americans, this is not an easy question to answer. And sometimes, obscurity reinforces procrastination regarding some important things like retirement. That explains why one Bank rate survey revealed that around 20% of American workers do not know where they stand regarding retirement planning. In other words, they are not actively planning for the inevitable retirement age.

Another interesting question many people ask is what I need to budget for in retirement? Before using a retirement budget calculator, let's look into the core factors that influence a typical plan.

How To Make A RetirementBudget

List Your Recurring And Non-Recurring Expenses

Before you get into the step of calculating how much money you'll need for retirement, you need to clarify what to include in your budget. And that clarification will answer the question referenced in this post's earlier section. Take your desired standard of living into account and make a list of normal expenses needed to maintain it. Think about your costs in the following categories.

Recurring Expenses: These are the types of repetitive life expenses usually familiar to most of us. In most cases, such expenses are typically fixed. That's why it is easy to calculate a fixed expense when creating a retirement budget. Your task here is to list everything that comes to mind. Think of items like food, water, electricity, entertainment subscriptions, and other recurring potentially essential expenses that are relatively fixed.

Non-Recurring Expenses: Clothing, travel, family engagements, income taxes, and charitable giving are parts of non-recurring expenses. Remember you have to pay withdrawal taxes regarding this, like 401 (K) or IRA. If you have other personal recurring expenses that are usually not fixed, try to list them out as well.

Make Provision For Unpredictable Expenditures

Even though professional financial planning services can help you gain increased control of your life after retirement, some expenditures are bound to be unpredictable but must be considered when talking about retirement budgeting. Instead of trying to make perfect predictions, your best bet is to make provision for unforeseen circumstances. Most times, circumstances relating to medical expenses and housing may result in unexpected expenses. For example, if you have sudden roof damage, you don't have to rely on your family or children to come to your aid.

Unforeseen emergencies relating to your sight, hearing, or dental health may result in unexpected expenditure. Hence, you need to make financial provisions for it in your budget to maintain the retirement lifestyle of your choosing.

Calculate Your Retirement Savings

When you have your expenses listed out, it becomes easy to calculate how much you'll need to live the life you want at that time based on your retirement expenses. And that will give you the basis to start calculating your retirement savings. To make it more realistic, it's important to set retirement saving goals. You can use the free retirement savings calculator from Diddel & Diddel financial advisors to start your estimation.

Based on the Department of Labor data, you'll need around 70 - 90% of your pre-retirement income to live a comfortable life when you retire from active work. Pause now and think about this. 

What is your current income, and what percentage will you need to maintain your desired standard of living after retirement? Obviously, what you save now in your retirement fund is what you'll spend when you stop working. In addition to a personal savings account, your pre-retirement income may accrue from sources like -

  • Social security
  • Pensions
  • 401(K) or 403(B)
  • Roth IRAs
  • Investments
  • Passive income

Take all your retirement income sources into account, calculate your savings and use the figures to budget how you can meet up with the listed expenses. Though many variables are at play, taking a month-to-month and annual approach will make it easy for you to create a relatively realistic retirement plan

For you to get an edge and minimize confusion, it might be helpful to engage the services of a professional financial advisor. Using a budgeting worksheet may also prove beneficial.

Whether hiring a financial advisory consultant or not, one other important thing to decide is how long you want to plan for. Take your age, saving, and other relevant factors into account and determine what's suitable for you.

Clarify Your Retirement Spending Plan

The first thing worth noting is how you spend your retirement income inside of a budget worksheet; savings will determine how long it will last. Interestingly, this is not the time you should give room for impulsive purchases, even though it is good to make room for fun.

At this point, you have to decide how much to withdraw each year or month, as the case may be. Assuming you have your fixed and variable monthly expenses figured out, it will help you determine the appropriate withdrawal amount with your current monthly income. Irrespective of how long you are planning, most experienced financial experts recommend spending less than you earn in terms of retirement income.

In other words, you should be aiming to spend less than what is available or coming in. Considering the 4% retirement spending rule, you may have to peg your spending within $40,000 per year if your total portfolio value is around $1,000,000.

Take your variable and fixed monthly expenses into account and determine the appropriate amount to withdraw at any given interval.

Track And Review Your RetirementBudget

Choose when and how to review your retirement budget after every month or year. Doing this will help you check that your spending plan is aligned with the budgeted income and expenditure. Perhaps, it will also make it easy to detect when you are going off track. Through this periodic review, the insights gained will enable you to rebalance things when it is necessary.


Above here are the major steps on how to create a retirement budget. As noted in the previous sections, starting early will give you enough time to plan how you want things to work out. However, relatively older people can still get on the right track starting today.

If you have formed the financial habit of budgeting your money, the experience will guide you on how to start on a firm foundation. One thing that everyone agrees on is that retirement is not something you should leave to chance. Hence, continuing to procrastinate around it is not in your best interest. What is in your best interest is to start creating a retirement savings strategy as soon as possible. 

Assuming you have so much personal debt and don't know where to start, you may want to consult a financial advisor to help you create a customized debt repayment plan so you can start your retirement planning as soon as possible.