Preparing your budget for retirement doesn’t always get its due. Even people who save diligently for retirement and devote long hours to retirement planning may fail to put much thought into budgetary topics such as, How much will I be able to spend on dining out each month in retirement? or What costs can I trim in retirement?
That’s unfortunate, because budgeting can be even more important after your career ends than before—retirees who overspend have less time and fewer earning opportunities to dig out of a financial hole.
Bottom Line Personal asked Anne Serrano, budget specialist for Abacus Planning Group, to offer her budgeting insight for retirees and pre-retirees.
The Challenge of Setting a Retirement Budget
Setting a budget can be tricky for retirees. When people are in the workforce, their income usually offers a rough framework for how much they can afford to spend—the budget typically is the portion of their paycheck that reaches their bank account after taxes and retirement-plan contributions are withheld. That’s an imperfect system but at least a starting point.
When people retire, however, net income is no longer as useful as a budgeting barometer—retirees typically live off a combination of income and savings. But how much of their savings can they safely spend each year, and what are their other income sources? “Budgeting in retirement can be a little more complicated,” agrees Serrano. “A good starting point is Social Security benefits plus pension benefits plus 4% of retirement savings per year.”
Example: As of 2026, the average monthly Social Security benefit is around $2,000 per month—$24,000 per year. Approximately two-thirds of retirement-age adults have no pension at all, according to the Pension Rights Center—that’s because most employers have shifted from traditional pensions to 401(k) plans. The average American in his/her 60s has around $250,000 saved in retirement plans, according to a recent study by Fidelity Investments. Using the 4%-per-year guideline means that a $250,000 nest egg produces annual income of $10,000 (a figure that can be increased in future years to keep pace with inflation), which together with $24,000 in Social Security benefits brings the annual retirement budget to $34,000, or $68,000 for a married couple who each have average retirement income and savings.
Serrano cautions, though, that this 4%-of-savings-plus-Social Security-plus-pensions budget should be considered a starting point, not a hard-and-fast rule. A financial planner can help fine-tune a retirement budget and spot potential complications. One of the most common complications—retiring too soon.
The Early-Retirement Budget Busters
“When you retire matters,” warns Serrano. Plenty of people dream of retiring before age 65, and many actually do so. In fact, the average retirement age is around 64½ for men and around 62½ for women, according to the Center for Retirement Research at Boston College. But retiring before age 65 can complicate budgets…
Retiring early increases the odds of outliving your retirement savings
If you follow the 4%-per-year withdrawal strategy described above and have a balanced portfolio, your retirement savings are very likely to last at least 30 years—but the younger you retire, the greater the odds that 30 years isn’t long enough. Current statistics: A non-smoking woman who retires at age 60 has a better than 50% chance of living 30 years or longer…a 60-year-old non-smoking man, a 42% chance, according to Stanford University’s Center on Longevity.
It reduces monthly Social Security retirement benefits
The sooner someone claims his Social Security benefits, the lower his monthly benefit amount will be. Example: A retiree born in or after 1960 who is slated to receive $2,000 per month at his “full retirement age” of 67 would receive only $1,400 if he started benefits at 62. But he would receive $2,480 if he waited until 70. Pensions also are likely to be reduced if benefits are started early. Retiring early but not claiming benefits until later could be an option, but that typically means withdrawing even more from savings during the early retirement years.
It creates potentially prohibitive health coverage costs
Medicare eligibility begins the month someone turns 65. Retire before age 65, and it’s often necessary to pay steep premiums for health insurance unless the early retiree has access to affordable coverage through a former employer’s plan. Example: The average cost of Affordable Care Act (ACA) coverage for someone in his early 60s exceeds $1,000 per month—that’s $20,000 to $30,000 per year for a couple that retires early. Subsidies might help with those coverage costs, but many people don’t qualify for ACA subsidies under the rules in place as of early 2026.
The Ever-Changing Nature of Retirement Budgets
Another retirement budget challenge—retirees can’t simply set a budget and stick to it throughout retirement because retirement isn’t really a single stage of life, notes Serrano. As retirement progresses, retirees’ health, mobility and energy levels tend to decline. As important as it is to create and follow a retirement budget, it is equally important to periodically review and revise that budget, and to anticipate change.
Examples: Housing costs might decline early in retirement if retirees downsize from a family home to a condo…then escalate dramatically later in retirement if they move into an assisted-living facility. Health-care costs might be manageable early in retirement when someone becomes eligible for Medicare…then climb over the course of retirement, as health issues and out-of-pocket costs accumulate even with Medicare. Home-upkeep costs might fall early in retirement as retirees have more time than ever to take care of their properties…then increase later as decreasing mobility means they must hire help. Travel expenses often are significant early in retirement as people take the trips they always dreamed of…then decrease later in retirement as they tire of travel or their health no longer allows it. A study by researchers at Virginia Tech and Rutgers University confirmed that travel typically declines as retirees age. “The ‘go-go years’ of early retirement are often followed by the ‘no-go years’ of late retirement,” says Serrano.
What to Cut from a Retirement Budget
The traditional advice to someone trying to trim his budget is to total up the cost of his “needs”…subtract that from his budget…then make some hard choices about how to allocate whatever remains among his “wants.” But Serrano warns that’s the wrong way to budget during retirement for two reasons…
“Wants” that seem frivolous actually might be critical to a retiree
Paying $5 for a coffee shop coffee every morning might seem like a “want” that should be eliminated…but for some retirees that $5 is a very reasonable price for a reason to get out of the house and spend time among other people, something that contributes to both health and happiness. The same might be true of other “wants” such as travel, meals, activities and memberships. Maintaining an active, social and interesting life is so important that people planning their retirement budgets would be wise to weigh not only their financial budget but also their “time budget,” suggests Serrano. If what seems like a sensible financial budget leaves them with too many uninteresting or isolated days, then that budget needs a rethink.
We need our “needs,” but we might be able to live with fewer of them
The fact that we must have certain things like shelter, groceries, utilities and transportation does not mean that these are inflexible components of a retirement budget. “It’s perfectly reasonable to cut back on a need if it’s not your top priority,” says Serrano.
Example: A retiree needs somewhere to live, but if having a flashy home isn’t high on the list of her priorities, she could dramatically downsize to a humble condo or apartment. And while it’s important to have a way to get around, a retired couple doesn’t necessarily need two cars, particularly if they have convenient access to public transit.
Caution: Serrano warns that retirees should be skeptical of online articles advising them which expenses they should cut. Examples: It’s common to read that retirees should trim their wardrobe budget once they no longer need office attire or cut back on gifts to kids and grandkids when money is tight. But while those and other cuts are worth considering, they’re not appropriate for every retiree. If dressing sharp or spoiling the grandkids brings purpose and meaning to a retiree’s life, then those things should be considered “needs” for that person. Some good news: One of the biggest expenses of the working years can safely be cut from retirement budgets. “You no longer have to save for retirement once you’re retired,” notes Serrano.
