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How to Budget for Retirement With Variable Income

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For most people, saving for retirement seems like a daunting endeavor. Crossing that finish line requires that you spend decades setting aside cash. That’s tricky enough, but it’s even more intimidating when you’re trying to save steadily while riding the rapids of income volatility. If your income varies, you’re not alone. 

30% Of American families had income that varied from month to month.*

You might be employed in a job that, like teaching, may pay out only part of the year. Maybe you own a seasonal business. Or you earn your income from the gig economy doing freelance or temporary work—as one in three Americans do.¹

So how can you plan for retirement when your income isn’t consistent? And what can you do to ensure you stay on track with retirement savings no matter what? Here are some moves that may help you answer those questions.

Start With a Budget

Reaching your retirement goals means planning ahead to save. And you probably know that a budget is an extremely useful tool. There are several methods you can use, depending on the situation.

Annual Budget

If you know roughly what you’ll make in a full year—even if your income varies from month to month—you could use an annual budget. 

Know Where Your Money Goes

For a detailed financial plan, you can try a premade template to list income and expenses and set guidelines to move you forward.

Two Budgets for Lean and Good Times

When your income is less predictable, you could create not only a standard budget but also a stripped-down one for leaner times. When your income decreases, switching to your stripped-down budget lets you cut back on the extras while still saving and prioritizing your big financial goals.

50-30-20 Budget Rule

Another method for budgeting is to make a quick, high-level budget with the 50-30-20 rule. For this percentage-based plan, you put 50% of your earnings toward your needs, 30% toward your wants and 20% toward your savings and paying off any debt.²

Keep It Simple

An illustration of the high-level budget method with the 50-30-20 rule.

Pay Yourself First

For most people, it’s tempting to make long-term savings your lowest priority. You may want to focus on paying your mortgage, utilities and credit card bills or maybe planning for a big night out, and only then do you take whatever’s left and stash that in savings.

Paying yourself first flips that approach on its head. Instead of saving what, if anything, is left over, you treat your long-term savings just like a priority bill.

Make Your Future a Priority

Earmark cash for retirement before you spend a penny of your pay.

If you’re an employee with a 401(k) or 403(b), have your employer deduct a percentage of each paycheck upfront. If you’re self-employed or a gig worker, you can easily set up your own retirement account. Then, start saving.

Target a Percentage Instead of a Dollar Amount

When your take-home pay has highs and lows, it can be tough to stick with a fixed savings goal every single month. Target a percentage of your earnings to save each month. That way, while the amount of cash you put aside may vary, you’re still putting money toward your goal.

Decide How Much to Save

Financial experts often suggest setting aside between 10% and 20% of what you earn for retirement.³

If you’re saving on your own without the convenience of paycheck deductions, consider setting regular reminders or automate the process with electronic transfers. Whenever you get paid, shift the money from your bank directly to your retirement account with just a few clicks.

Pad Your Emergency Fund

Though it might not sound related, a healthy emergency fund is key to meeting your retirement savings goals—especially when your income varies.

During lower-income months, you might need to pull from savings to cover your expenses. Cutting contributions to retirement is one of the first things many people do when they don’t have enough money in reserve. And some people may even be tempted to borrow or withdraw cash from their retirement accounts—but what you’ll pay in taxes and penalties may cost you more in the long term than the cash helped you in the short term.

Calculate Your Emergency Fund Amount

Use this interactive PDF to calculate how much you may need in your emergency fund to cover 12 to 24 weeks of living expenses. Download PDF

If you want to be consistent in saving for your retirement, it’s essential that your emergency fund is there to support you. So, if your cash reserve could use a boost, go back to the budget you created. Make contributions to your emergency fund another bill to pay to yourself and target a fixed percent each month. Over time, you should be able to build up a strong financial safety net.

Saving for retirement definitely has its challenges when your income fluctuates. But these simple strategies can help you save consistently and reach your retirement goals.

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Report on the Economic Well-Being of U.S. Households in 2019, Featuring Supplemental Data from April 2020, Board of Governors of the Federal Reserve System, May 2020.


Report on the Economic Well-Being of U.S. Households in 2019, Featuring Supplemental Data from April 2020, Board of Governors of the Federal Reserve System, May 2020.


What is the 50/30/20 Budget Rule, Eric Whiteside, Investopedia, October 2020.


How Much of Your Salary Should You Put Away for Retirement?, Chris Carosa, Forbes, September 2020.

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.