How to Build a Monthly Budget for Retirement

How much should you save for retirement? The short answer is “a lot,” but experts say the actual dollar amount depends on how much you expect to spend after you leave the workforce. The best way to make sure you’re saving enough is to build a monthly budget for retirement that includes all your post-retirement income sources, all your expenses, and allows for some unexpected costs along the way. Here’s how to get started.

List all your retirement resources

Most of us will have more than one source of income during retirement, and financial advisers say that’s a good thing. A diverse group of income sources means that if there’s a problem with one (such as a sharp downturn in the stock market) other resources can keep you afloat.

Factor in monthly income you expect from:

• Social Security
• An employer sponsored pension, if you have one
• Retirement accounts
• Annuities
• Savings accounts and certificates of deposit
• Investment income from mutual funds, stocks and bonds
• Equity in your home that you can access in an emergency
• Income from part-time work or a second career

It’s a good idea to err on the conservative side as you make your estimates.

Add up your monthly expenses

For a quick estimate of how much you’ll need if you plan to keep living the same lifestyle, Kiplinger suggests subtracting your work-related expenses from your current budget. Add in the cost of new hobbies or travel.

To ensure you have enough money over the long term, make a more detailed budget listing your projected expenses in dozens of categories such as groceries, pet care, dining out, utilities, insurance premiums and more. Remember to factor in yearly bills like property taxes and ongoing maintenance on your home and car.

TIAA has a free downloadable worksheet here to print. If you’d rather play with the numbers online, AARP’s home budget analysis calculator gives you detailed printable results.

Plan for healthcare expenses

Because healthcare costs are often the biggest expense retirees face, they merit extra planning. US News & World Report said in 2014 that a 65-year old newly retired couple would need $220,000 saved to cover future health care costs. If that seems daunting, remember that there are programs and insurance policies that can help reduce your costs. Get a long-term care insurance policy, ideally one that will cover the cost of in-home help and assisted living as well as nursing home care. Don’t make the common mistake of assuming Medicare pays for long term care. It does not. Medicaid does, but only after you’ve run out of other money.

If you plan to age in place, find out what it will cost to make changes to your home such as wheelchair ramps, grab bars, or a walk-in bathtub and start putting that money aside now.

Consider “surprise” scenarios

Kiplinger and Bankrate recommend planning for the unexpected, such as a grown child who needs financial help or expenses related to caring for your own aging parents. A growing number of retired grandparents are partly or completely responsible for raising their grandchildren, so it’s worth thinking about how you might cope with that expense if you have grandchildren of your own.

Finally, it’s a good idea to talk with a trusted accountant, certified financial planner, and eldercare attorney to refine your plans and understand the tax and inheritance implications. All of this is work, but making a retirement budget now can mean less worry and more fun going forward.

Casey Kelly-Barton

Casey Kelly-Barton is an Austin-based freelance writer whose childhood was made awesome by her grandmothers, great-grandmother, great-aunts and -uncles, and their friends.