Building a retirement budget is different from budgeting during your working years — and most personal finance advice misses this entirely. A retirement budget must account for a fixed (and often declining) income, healthcare costs that grow with age, inflation that erodes purchasing power, and the reality that spending patterns in retirement shift dramatically from decade to decade.
This guide gives you a framework that actually works — not a generic template, but a realistic approach based on how retirement spending actually behaves.
Ages 65–75 (Go-Go years): Active, travel, hobbies — often highest spending.
Ages 75–85 (Slow-Go years): Less active, fewer discretionary expenses, rising healthcare costs.
Ages 85+ (No-Go years): Significantly reduced activity, highest healthcare and potential long-term care costs.
Step 1: Map All Your Income Sources
Before you can build a budget, you need a complete picture of guaranteed vs. variable income:
- Social Security: Monthly benefit amount (get your estimate at ssa.gov/myaccount)
- Pension: Fixed monthly amount if applicable
- Required Minimum Distributions (RMDs): From traditional IRAs and 401(k)s — required starting at age 73
- Part-time work: If still working
- Rental income: If applicable
- Annuity payments: If you have any annuity products
Separate guaranteed income (Social Security, pension, annuity) from variable income (investment withdrawals, part-time work). Guaranteed income is the bedrock — your fixed expenses should be covered by guaranteed income wherever possible.
Step 2: Budget Healthcare Costs Accurately — Most People Underestimate This
Healthcare is the biggest budgeting mistake in retirement. Fidelity's annual estimate for 2026 is that a 65-year-old couple will need approximately $330,000 for healthcare costs in retirement — and this assumes Medicare coverage throughout. Per-person, that's roughly $165,000.
Build your healthcare budget line by line:
- Medicare Part B premium: $174.70/month (standard; higher if IRMAA applies)
- Medigap premium (if applicable): $100–$200/month depending on plan and location
- Part D premium: $7–$100/month depending on plan
- Dental insurance or out-of-pocket dental: $500–$2,000/year
- Vision: $200–$600/year
- Out-of-pocket prescription costs above Part D coverage
- Over-the-counter health products
Total healthcare for a senior on Original Medicare + Plan G: approximately $5,000–$8,000/year for routine health. Budget more if you have chronic conditions.
Step 3: List All Fixed Monthly Expenses
- Housing (mortgage/rent, property taxes, HOA fees)
- Utilities (electricity, gas, water, internet, phone)
- Insurance (homeowners/renters, auto, life)
- All healthcare premiums (Medicare, Medigap, Part D, dental, vision)
- Loan payments if any
- Subscriptions
Step 4: Estimate Variable and Discretionary Expenses
- Food and groceries: USDA estimates $400–$600/month for a senior couple
- Transportation: Car payment/maintenance, insurance, gas, or public transit
- Travel and leisure: Varies enormously — be realistic about your plans
- Gifts and family support: Often underestimated in retirement budgets
- Home maintenance: Budget 1% of home value per year for maintenance and repairs
- Personal care: Haircuts, clothing, personal items
- Entertainment: Dining out, hobbies, subscriptions
Step 5: Build an Emergency Fund and Account for Inflation
Maintain a liquid emergency fund of 6–12 months of expenses — more than the 3-month rule during working years, because retirement income is harder to increase quickly if a large unexpected expense hits.
Inflation is the silent destroyer of retirement budgets. At 3% annual inflation, $50,000 in annual expenses today costs nearly $67,000 in 10 years and $90,000 in 20 years. Social Security's Cost of Living Adjustment (COLA) partially offsets this, but often doesn't keep pace with the healthcare inflation seniors experience.
The 4% Rule and Safe Withdrawal Rates
The 4% rule suggests you can withdraw 4% of your investment portfolio in year one of retirement, then adjust for inflation annually, with high confidence the money lasts 30 years. For a $500,000 portfolio, that's $20,000/year in withdrawals.
Current research suggests 3.3–3.5% may be more appropriate given current market conditions and potentially longer retirements. A fee-only financial advisor can help you calculate a personalized safe withdrawal rate based on your specific situation.
- List all income sources — separate guaranteed from variable
- Build fixed expenses from guaranteed income wherever possible
- Budget healthcare costs realistically — at least $5,000–$8,000/year for Medicare + Medigap
- Keep 6–12 months of expenses in liquid savings
- Adjust your budget upward by 3% per year for inflation
- Review and update your budget annually — spending patterns change as you age
- Consider a one-time consultation with a fee-only financial advisor (not commission-based)
Frequently Asked Questions
How much money do you need to retire at 65?
A common guideline is to have 10–12 times your annual salary saved by retirement. With a 3.5–4% safe withdrawal rate, a $500,000 portfolio generates $17,500–$20,000 per year in retirement income. Combined with Social Security, most seniors need $300,000–$1,000,000 depending on lifestyle and healthcare costs.
What is the average retirement income for seniors?
According to Social Security Administration data, the average Social Security benefit in 2026 is approximately $1,900 per month ($22,800 annually). Including other income sources, the median income for households headed by someone 65+ is approximately $50,000–$55,000 per year.
How much should seniors budget for healthcare in retirement?
Fidelity estimates a 65-year-old couple needs approximately $330,000 for healthcare costs throughout retirement — even with Medicare. Individual annual healthcare costs typically run $5,000–$10,000 per year including Medicare premiums, Medigap, Part D, dental, and out-of-pocket costs.
What is the 4% rule for retirement?
The 4% rule states that you can withdraw 4% of your investment portfolio in year one of retirement, then adjust for inflation annually, with high confidence the money will last 30 years. On a $500,000 portfolio, that is $20,000 per year. Current research suggests 3.3–3.5% may be more appropriate.
How does inflation affect retirement income?
At 3% annual inflation, $50,000 in expenses today costs $67,000 in 10 years and $90,000 in 20 years. Social Security includes annual Cost of Living Adjustments (COLA) that partially offset inflation, but healthcare inflation typically exceeds the general inflation rate — eroding purchasing power over time.