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Do I Still Need a Budget in Retirement?

A budget can help you stretch your nest egg in retirement.

By  Chris Goodwin

Key Takeaways

Budgeting expected costs and income is crucial for planning for retirement and while you’re living it.

Costs will change as you move through different retirement phases, so it’s important to review your budget regularly.

Saving for the unknown and investing can potentially help make your nest egg last and make you feel more confident to spend.

When it’s time to stop working—or if you already have—don’t retire an important piece of your financial plan: your budget. A plan for spending and saving may be even more critical when you no longer receive a steady paycheck. A good budget will help cover you in each phase of retirement. The crux of it is to help make your money last.

The Budget Burden

Budgeting can get a bad rap because it takes time and commitment to follow through. It may also feel restrictive. However, most people report that they have a budget—85% across all age groups say they do.1 However, saying you have a budget and using it may be two different things. Only 32% of U.S. households prepare a monthly budget.

Why a Retirement Budget Is a Must

Budgeting gives a realistic view of how much income you have and how much you can spend, even in retirement. And it helps address an anxiety many retirees have: the fear of not having enough. It’s a legitimate concern because statistics show that even though retirement income amounts are rising, many retirees may find themselves coming up short, especially as they live longer.2

50% of 2023 retirees are at risk of running out of money.³

Even if you are confident in how much money you have saved for expenses in retirement, you still need a budget.

Another recent retirement concern is inflation. This overall increase in the prices of costs and services stresses post-retirement budgets as money loses purchasing power and can’t buy as much as it once did. And if you are like most people, your retirement income is funded partly from your investments. Recent high inflation has negatively impacted investment portfolios, which are key to most retirees’ budgets.

Budgeting will help you understand the boundaries of your income and expenses. The numbers will help you see whether you’re ready to retire and pinpoint how to manage your finances to make your money last.

Will Your Spending Habits Change in Retirement?

Some say to budget 70% to 80% of your pre-retirement expenses for retirement to keep your current lifestyle. The challenge to this rule is acknowledging that retiring from a job with a limited amount of vacation to a full 52 weeks of freedom in retirement can be a big lifestyle change. Current research4 shows that retirement spending patterns vary by age, and you won’t necessarily spend less.

For example, younger retirees and those who just retired tend to spend more in the first two years than they did while working. That may be attributed to having more time to travel and do more things. As retirees age, they spend less than before retirement. Older retirees tend to focus on essential needs such as health care over discretionary ones.

Why You Need a Budget

Regardless of how much you make, budgeting is the only way to take control of your money, and it’s the only way to be in control of your own choices. For those who are more frugally minded, a budget can provide predetermined levels to comfortably spend compared to seeing it more as a limitation.

How to Create a Good Retirement Budget

Now that we’ve established that a budget is a “must” for retirement, let’s talk about how to do it. The most important thing is to take time to create one. It may feel like a chore, but sticking to a well-thought-out plan can make a difference in your financial health and lifestyle in retirement. Just remember to include EVERYTHING so nothing is left to chance.

Key Components of a Retirement Budget

Your retirement budget addresses both expenses and income. I find most people add up their expenses, then compare it to their income to see if the budget is sustainable. Then we start figuring out where adjustments can be made.

Here are the six basic categories to understand for budgeting in your golden years:


  • Fixed Expenses
    Your budget’s foundation lies in fixed expenses, covering housing, utilities, insurance premiums and property costs. Assess these costs to inform decisions about downsizing, refinancing or managing your living situation to align with your retirement income.

  • Variable Expenses
    These costs add flexibility and enjoyment to retirement. They encompass dining out and groceries, travel, entertainment, gas, shopping and holiday or birthday gifts. Variable expenses can change month to month, but balancing them in retirement is crucial.

  • Health Care Costs
    Rising health care costs can be a significant expense, and a concern, as 38% of retirees say health costs are higher than expected.5 Factor health insurance premiums, uncovered Medicare costs and long-term care into your post-retirement budgeting.

  • Unexpected Retirement Expenses
    One-time costs, like replacing a leaky roof and medical emergencies may still occur. Set up an emergency fund to handle these occasional hiccups and keep your retirement plan on track. Larger surprises, such as an adult child or elderly parent, becoming financially dependent on you or a reduction in Social Security and pension benefits due to the death of a spouse, may require more changes to how you handle your retirement finances.

Unexpected Expenses—Are You an Over Estimator or Under Estimator?

Overestimating unexpected expenses isn’t necessarily bad; however, you may be able to spend more than you think. Under estimators may need to revisit this category. Those who constantly feel their budget is wrecked by unexpected expenses may not have enough emergency savings. A telling sign is that you are shocked by how much rainy-day events cost. If you find yourself blowing through your unexpected expenses budget line, you may need to take a more realistic look at those expenses.


  • Investments and Savings
    Managing your investments is vital to sustaining your retirement income. Learn how to create a diversified portfolio, monitor investments and adapt to changing market conditions—or seek help from a financial advisor. Investing properly and withdrawing in a tax efficient manner in retirement may give you a better chance of maintaining a retirement income and making your savings last.

  • Social Security and Pension
    Social Security and pension benefits are key retirement income sources. Get familiar with the rules of making claims for yourself or as a spouse, as well as strategies for delaying benefits for increased payments.

Is My Budget Ready for Retirement?

Complete this quick checklist to help you have a better idea. Then talk to a financial consultant to fill in any budget gaps or confirm the one you have.

Let's get started.

One thing to note is that your budget will need to change through retirement. A common view is that there are five retirement stages—each relating to your state of mind, based on research by gerontologist and author Ken Dychtwald.6 These phases work well because of the connection between emotions and your finances.

Budget for Each Phase of Retirement

The first stage of retirement is “imagination,” and it’s a time when you accumulate savings, typically five to 15 years before. For this budget discussion, we’ll start with the second phase when it’s crucial to start planning for income.

Anticipation: Your Preretirement Budget

About three-to-five years before retirement, people start anticipating their next steps—maybe with excitement, maybe with regret. At this stage, it’s important to estimate a budget to help answer some important questions:

  • When can you retire?

  • Will you need to work in retirement?

  • Can you afford the retirement lifestyle you want?

Here are some keys to budgeting in this stage:

  1. Understand and discuss with a financial professional your plans for Social Security. There are ways to maximize these benefits, so you want to plan ahead.

  2. Consider your debt situation. While you don’t necessarily need to be debt-free, this is a matter that may best be addressed while you’re still working.

  3. Can you find ways to save more? This is important as you consider your retirement income.

  4. Consider expenses that may decrease and new ones that may crop up. Don’t ignore the possibility of larger medical expenses as you age. You’ll also need a plan for how you will use Medicare.

  5. Determine a good withdrawal strategy from savings and investments, starting with how much you withdraw each year. This is where you’ll need to adjust expenses or income to balance your budget.

Liberation: Your Year 1 Retirement Budget

The first year in retirement is estimated to be the time of most upheaval, both emotionally and financially. You no longer receive a regular paycheck, but you have lots of freedom, which could be a reason many retirees do spend more in the first two years.

However, if there was ever a time to stick to your budget, it’s now. Not that you shouldn’t enjoy yourself, but the last thing you want to do is overspend.

Here are some things to consider for your budget while you enjoy your liberty:

  1. Did your estimated budget hold up? It’s time to track your expenses and see where you may need to adjust. Ask yourself: Am I using too much of my savings too quickly?

  2. If you’re younger, consider delaying Social Security to get more income from your benefit.

  3. Do you need more income, such as getting a part-time job? Even if you’re already drawing Social Security, you can still earn a certain amount each year without penalty. Also consider working while you’re younger so you won’t have to resort to this later in retirement.

  4. Does your budget allow you to keep adding to your investment portfolio?

  5. If you haven’t already, should you budget for long-term care insurance? The costs are more affordable if you purchase a policy while healthy.

Reorientation: Your 2-to-15 Year Retirement Budget

In this stage, many begin to settle into the retirement they want. They also may reinvent or transform themselves by doing something they’ve always wanted to do, like take up a hobby or learn a new skill. The important thing to ask yourself regarding money is can you afford the “new” you? It will take a budget to find out.

Here are some other considerations:

  1. If you reach age 73 (or 75 if you were born after 1960) during this phase, what will you do with the required minimum distributions the IRS requires you to take from retirement accounts? If you don’t need them to cover expenses, they could be a good way to invest in a taxable account or support a grandchild’s education.

  2. Continue to consider your expenses and changing needs. As your spending patterns change, make sure your budget reflects it.

  3. People in this phase begin to think about their legacy. An estate plan is important, but thinking about what you want to leave behind may affect what you spend and your budget.

Reconciliation: Your 15-Year (and Beyond) Retirement Budget

In this phase, retirees come to terms with their lives. It could be described as contentment. Your expenses may also decrease. Maybe you won’t travel as much as you did before. On the other hand, you may see increases in other expenses such as health care.

Other things to consider:

  1. Will you or a spouse need short- or long-term assisted living? How will these significant expenses affect your budget?

  2. Legacy thoughts may become even more important to you, so you’ll want to think through whether you want to reduce expenses to leave more.

  3. Evaluate how much is in your savings and investment accounts. Have you been overspending? Some may be underspending out of fear.

A Final Plea for a Good Retirement Budget

There’s a lot to think about for a budget in retirement, and those thoughts can change depending on which phase you’re in, your health care needs and your living situation. If you need help with your budget, please talk to someone—it’s that important. Remember, our team of financial consultants is here to help.

Chris Goodwin
Chris Goodwin

Financial Consultant

Get Help With Your Retirement Planning and Budgeting


More Americans Are Budgeting—and Getting Out of Debt, poll, November 2023.


Average Retirement Income 2023: How Do You Compare?, June 2023.

3 based on U.S. Census Bureau’s Current Population Survey (CPS) Annual Social and Economic (ASEC) Supplement. The CPS is a joint effort between the Bureau of Labor Statistics and the Census Bureau. January 2020.


Consumer Expenditure Surveys 2022,
U.S. Bureau of Labor Statistics, September 2023.


2023 Retirement Confidence Survey, Employee Benefit Research Institute, April 2023.


The 4 Stages of Retirement Ep #250, Retirement Starts Today Podcast, June 2022.

The opinions expressed are those of American Century Investments (or the portfolio manager) and are no guarantee of the future performance of any American Century Investments' portfolio. This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.

You could lose money by investing in a mutual fund, even if through your employer's plan or an IRA. An investment in a mutual fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.