For a married couple approaching retirement, few things carry more significance than knowing how much income they’ll need to maintain financial stability and live comfortably after they stop working. Budgeting for retirement involves estimating your post-retirement income and calculating your essential and discretionary expenses. This approach helps you to avoid financial pitfalls and increases the chances your golden years will be enjoyable and worry-free. Here are practical, step-by-step instructions to create an effective retirement budget.
Discussing your situation and objectives with a financial advisor can help you create a viable plan for a comfortable retirement. Connect with your advisor matches today.
Estimate Your Retirement Income
While budgeting always involves some uncertainty, one hard-and-fast rule is that your post-retirement spending plan must not exceed your post-retirement income. For most couples, Social Security will be an important part of that income. Many will also have income from investments and, less commonly, corporate or public pension benefits, annuities and part-time employment. Estimating income can be fairly straightforward, as shown in this example:
In January 2025, the estimated average Social Security retirement benefit is around $1,975 a month. Spouses receiving the average monthly benefit would could a combined $3,950 per month or $47,400 per year.
As for the average retirement savings, Fidelity data from 2024 shows that the average account balance for people between 60 and 64 years old was $247,900. Assuming the married couple from above has a combined $500,000 in savings and withdraws 4% per year, they would have another $1,666 in monthly income or $20,000 per year.
Combining these two sources of income – Social Security and retirement account withdrawals – gives this average couple a total of $5,616 per month or $67,392 in retirement income per year. Both amounts will be adjusted annually to reflect inflation and Social Security benefits will last their lifetimes, while their investment portfolio can reliably be expected to sustain withdrawals for about 30 years or more.
Estimate Your Expenses
Now let’s turn our attention to expenses. The most accurate way to do this is by looking at your own spending patterns as you approach retirement.
Start with housing, which is the largest single expense for most people and likely to account for a third of the total. Add up your total expenses for the last year for rent if you are a tenant or mortgage principal and interest if you own your home but still have a loan Also include insurance premiums, property taxes, maintenance and homeowner’s association fees.
Food generally is the next-biggest category for retiree spending. Include grocery bills as well as costs for dining out and having prepared meals delivered. Other important retirement spending types include healthcare, utilities, transportation and discretionary outlays for travel, entertainment and the like.
You can make this task much faster, easier and more accurate if you use an online personal finance tool that tracks your spending and helps you make a budget. Otherwise, get the information for your totals from bank and credit card statements, mortgage statements, leases and other records.
If your recent expenses total less than your anticipated retirement income, that will give you confidence you’ll be financially secure after you stop working. Otherwise, you may need to reduce expenses or boost income.
The most effective way to reduce expenses is by downsizing to a smaller residence and perhaps also relocating to a less costly area. You can increase income by delaying retirement, which lets you save more and also increases your Social Security benefit or by working part-time. Paying down debts, especially mortgages can also reduce costs.
Two Examples of Retirement
Let’s see how this would work for two hypothetical couples. One will be for the average income described above and the other example will be a higher-income couple. The amounts approximate percentages from a 2023 survey of actual retiree spending by the Employee Benefit and Research Institute:
At $5,616 per month here’s how a retirement budget might look:
- Housing (30%): $1,685
- Food (26%): $1,460
- Healthcare (13%): $730
- Transportation (11%): $618
- Other expenses (20%): $1,123
This total comes in at $5,616, but it doesn’t account for the unexpected. This couple might do well to look at trimming costs, perhaps by downsizing or reducing discretionary expenses, so their budgeted spending is further below their budgeted income.
Another hypothetical couple has $100,000 in income due to higher Social Security benefits, a larger portfolio of investments and generous corporate pensions. Their expenses are likely to break down similarly in terms of percentages, producing a budget that looks like this:
- Housing (30%): $2,500
- Food (26%): $2,167
- Healthcare (13%): $1,083
- Transportation (11%): $917
- Other expenses (20%): $1,667
Retirement Estimate Limitations
These are hypothetical examples and a real couple’s experience could be quite different. EBRI found most individual retirees spend less than $5,000 a month, for example. Additionally, asset management firm BlackRock surveyed retirees across all income levels and found 80% were not drawing down their savings at all and the savings of almost a third of those who had already retired were still growing. Your mileage, as the saying goes, may vary.
Bottom Line
Developing an idea of what will be a good retirement income can help you plan effectively and ensure you can cover your basic expenses comfortably. Averages and rules of thumb can get you started, but individual circumstances vary so much that the smartest way is to collect your own information and generate a custom plan reflecting your personal situation. By carefully assessing your post-retirement income, identifying essential and discretionary expenses and making necessary adjustments, you can help ensure your long-term financial security.
Tips for Retirement
- A financial advisor can provide personalized strategies and expert insights to help you navigate complex aspects of retirement planning such as income projections, tax implications and investment management. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- Social Security benefits represent an important source of retirement income for most retirees. SmartAsset’s Social Security Calculator will you how much you can expect to receive using your income and your planned retirement date.
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