A retirement budget answers one question: will your monthly income cover your monthly costs, year after year? You don't need special software. A sheet of paper, or the worksheet at the end of this guide, is enough to start.
Key points
- Some costs usually go down in retirement, such as commuting, work clothes and saving for retirement itself.
- Others often go up, especially health care, home repairs, and travel or hobbies in the early years.
- Split your budget into must-haves and nice-to-haves. Try to cover the must-haves with steady income such as Social Security or a pension.
- Plan for rising prices. Social Security gets a yearly raise (3.6% for 2027), but most other income and savings do not adjust on their own.
Costs that often change in retirement
| Cost | What usually happens | What to plan for |
|---|---|---|
| Housing | Mortgage may be paid off; taxes, insurance and repairs continue | Property tax, home insurance, and repairs on an older home. Many people set aside 1% to 2% of the home's value a year for upkeep, a common rule of thumb. |
| Health care | Often goes up | Medicare Part B premium ($202.90 a month standard in 2026), deductibles, drug costs, plus dental, vision and hearing, which Original Medicare generally doesn't cover. |
| Transportation | Commuting ends | Car replacement, insurance, and later, other ways to get around if you stop driving. |
| Taxes | Payroll taxes stop | Income tax on traditional 401(k) and IRA withdrawals, and possibly on part of your Social Security. |
| Travel and hobbies | Often higher in the first years | A yearly "fun" amount you can raise or lower. |
| Family | Varies | Helping children or grandchildren, or caring for a parent. |
| Long-term care | Possible later | Help at home or in a facility. Medicare generally does not pay for long-term custodial care. |
Must-haves and nice-to-haves
Sort every cost into one of two lists:
- Must-haves: housing, food, utilities, health care, insurance, transportation, taxes, minimum debt payments.
- Nice-to-haves: travel, dining out, hobbies, gifts, home upgrades.
A common approach is to cover the must-haves with steady income (Social Security, a pension, an annuity if you have one) and use savings for the nice-to-haves. That way, a bad year for investments affects your extras, not your essentials.
How much can you take from savings? The 4% rule of thumb
A widely used starting point is the "4% rule": take about 4% of your savings in the first year of retirement, then raise that amount each year with inflation. It comes from studies of past market returns and was designed to make savings last about 30 years.
| Savings | 4% in the first year | About per month |
|---|---|---|
| $100,000 | $4,000 | $333 |
| $250,000 | $10,000 | $833 |
| $500,000 | $20,000 | $1,667 |
| $1,000,000 | $40,000 | $3,333 |
This is a rule of thumb, not a guarantee. The right amount for you depends on your age, your investments, taxes, other income, and how long your money needs to last. Withdrawals from traditional accounts are usually taxed. And from age 73 (or 75 if you were born in 1960 or later), the IRS requires minimum yearly withdrawals from most traditional accounts.
A simple monthly worksheet
| Monthly income | Amount |
|---|---|
| Social Security (yours and your spouse's) | $ ______ |
| Pension | $ ______ |
| Withdrawals from savings | $ ______ |
| Part-time work or other income | $ ______ |
| Total income | $ ______ |
| Monthly costs | Amount |
|---|---|
| Housing (mortgage or rent, property tax, insurance, upkeep) | $ ______ |
| Utilities, phone and internet | $ ______ |
| Food and household | $ ______ |
| Health care (premiums, drugs, dental, vision, hearing) | $ ______ |
| Transportation | $ ______ |
| Taxes | $ ______ |
| Travel, hobbies, gifts | $ ______ |
| Total costs | $ ______ |
If costs are higher than income, the usual levers are: working a little longer, delaying Social Security to get a larger check (see our claiming ages guide), saving more now (see catch-up savings), or trimming nice-to-haves.
Keep an emergency fund. Many planners suggest keeping several months of must-have costs in a savings account, so a surprise bill doesn't force you to sell investments at a bad time.
Sources
Educational information only. This guide is not financial, legal, tax or medical advice. GrandsGaro is a private website and is not affiliated with the Social Security Administration, Medicare, the Centers for Medicare & Medicaid Services, the IRS or any government agency. For decisions about your own benefits, check the official sources linked on this page.