Not sure how your spending in retirement will compare to your income? Let’s work through making a budget step by step, using an interactive worksheet you can take to your financial professional.
There’s a lot to consider when it comes to budgeting in retirement. But for the most part, it’s a matter of estimating how the money you’ll be spending compares to the money you’ll have coming in (your “retirement income”).
Build your retirement budget (PDF)
Start building your retirement budget with our interactive worksheet.
Building the best retirement budget for you means crunching some numbers. But don’t worry—our retirement budget worksheet (PDF) can help you stay organized in a simple two-page document.
To fill it out, you’ll need access to your financial statements:
- Pay stub/salary information
- Social Security statement (if you have one)
- Pension plan statement (if you have one)
- Retirement plan statements (from both current and former employers) and the percentage you’re currently contributing
- Statement or balance for any other savings or investment accounts you have (such as an IRA)
Got it? Then you’re ready to start budgeting. We’ll try to make it as straightforward as possible.
Log in to principal.com to access your account information and—if you choose—aggregate all your assets for easier budgeting. First time logging in? Get started here.
How to estimate your expenses in retirement
Some spending is essential: like paying for housing, food, and health care. But your retirement budget should also include more discretionary spending.
Generally, a budget includes about 50% needs, 30% wants, and 20% goals. Depending on your circumstances in retirement, some of that weight may shift from goals to wants or needs.
There are two options for informing your estimate.
Option 1: Use the 80% rule.
For most people, retirement expenses equal at least 80% of their pre-retirement income.
Option 2: Itemize to estimate.
Alternatively, review your current spending habits—item by item—and make projections for what you’ll spend and invest in during retirement.
Needs (50%)
-
Mortgage or rent
- Groceries
- Insurance
- Health care
- Income taxes
- Minimum debt payments
Wants (30%)
- Hobbies
- Travel
- Memberships
- Entertainment
- Shopping
Goals (20%)
- Building emergency savings
- Accelerating debt repayment
- Saving for a major purchase
How to think about your income in retirement
For most people, covering the above expenses means drawing from various accounts. Some may give you a set amount that’s guaranteed to last a lifetime (“guaranteed income sources”). Others fluctuate with the financial markets and/or spend down as you make withdrawals (“variable income sources”). For these, you’ll need to make some assumptions when budgeting, like how long you may live in retirement.
Guaranteed income sources
Variable income sources
- IRAs
- Workplace retirement plans: 401(k), 403(b), ESOP
- Personal savings: CDs, bank accounts, money market accounts
- Investments: Stocks, bonds, real estate
- Inheritances
How to evaluate your budget
Subtracting your total expenses from your total income will give you a bottom line. Whether you like that figure on the first pass or have some room to grow, it’s important to evaluate how adjustments could help you manage expenses or boost your income.
Log in to principal.com for additional tools that may make the process easier. Also consider working with a financial professional for personalized recommendations.
What’s next?
If you have a retirement account with Principal®, use the Retirement Wellness Planner to build a holistic view of your savings and to calculate your estimated monthly income in retirement.
