How to make a retirement budget
Every retirement calculation starts with one number: what you expect to spend in a year. Your target nest egg, how long your money might last and whether you could retire at a given age all depend on it. A small change in that number moves everything else. This guide walks through a simple way to estimate it. It explains a method; it doesn’t tell you what you should spend.
Start from what you spend now
The most reliable starting point is usually your own spending today, not a general average. Other people’s budgets can look very different from yours, because housing, family, health and plans vary so much.
A practical way to start:
- Collect one year of spending. Bank and card statements for the last 12 months give a fairly complete picture. If a year is hard to gather, take three months and multiply by four, then add the yearly bills you know about (insurance, subscriptions, taxes on property).
- Use yearly amounts. Our calculators work with yearly amounts only. If you think in months, multiply monthly figures by 12.
- Keep it in today’s money. Write every amount at current prices, even if retirement is years away. The calculators deal with inflation separately (see below).
Categories to include
Grouping spending into categories makes it easier to see what will change after work. A simple set:
| Category | What it usually includes |
|---|---|
| Housing | rent or mortgage, property taxes, maintenance, utilities, home insurance |
| Food | groceries, eating out |
| Transport | car costs, fuel, public transport, insurance |
| Healthcare and insurance | premiums, out-of-pocket costs, medicines, dental and eye care |
| Personal and household | clothing, phone, internet, subscriptions, household items |
| Travel and leisure | holidays, hobbies, sport, culture |
| Family and gifts | support for children or grandchildren, gifts, donations |
| Taxes | income tax on pensions or withdrawals, if you pay it from your savings |
| Buffer | unexpected costs |
You don’t need perfect precision. The aim is a figure you understand and can test.
Example (hypothetical, round numbers): housing $12,000, food $7,000, transport $4,000, healthcare and insurance $5,000, personal and household $4,000, travel and leisure $5,000, family and gifts $1,500, one-off costs (see below) $1,500. Total: $40,000 a year in today’s money.
One-off and irregular costs
Some of the largest costs don’t happen every year: replacing a car, a new roof, a kitchen, a big trip, help for a family member. They are easy to forget in a yearly budget.
A simple approach is to spread them out: divide the expected cost by the number of years between occurrences and add that to your yearly figure.
Example: a $30,000 car replaced every 10 years adds $3,000 a year. A $12,000 home repair every 8 years adds $1,500 a year.
What may change after you stop working
Some costs often go down when work ends, and others often go up. Which ones, and by how much, is personal. Think through each category:
- Often lower: commuting, work clothes, lunches out, pension contributions you no longer make, sometimes a mortgage that has been paid off.
- Often higher: travel and hobbies (especially in the first years), heating and utilities if you are home more, healthcare as you get older.
- Could go either way: housing (downsizing, moving abroad), family support, taxes.
If you want a point of comparison, the US Bureau of Labor Statistics publishes Consumer Expenditure Survey tables by age of the household’s reference person, including groups such as 55 to 64, 65 to 74 and 75 or older. They show averages for many households, not a target for yours, and they are updated every year. Your own figures remain the better input.
If you plan to retire in another country, prices can be very different. A retire-abroad comparison tool is planned.
Healthcare and insurance
Healthcare deserves its own line, because it can change a lot when work ends and the rules differ strongly by country: what public cover applies, from what age, and what you still pay yourself. Check the official sources for the country where you will live. A dedicated guide on healthcare costs is planned; until then, see all retirement guides.
Other income: what savings don’t have to cover
Your budget is what you spend. Your savings only need to cover the part that other income doesn’t. Common sources of other income are a state pension or Social Security, a workplace or personal pension, an annuity, rent or part-time work. See Where retirement income comes from.
Yearly amount from savings = yearly spending − other yearly income
Example: spending of $40,000 a year with $15,000 of other income leaves $25,000 a year for your savings to cover. At a 4% withdrawal rate, that points to a target of $25,000 ÷ 4% = $625,000. Without the other income, the same budget points to $40,000 ÷ 4% = $1,000,000. See Withdrawal strategies for what the 4% rule does and doesn’t say.
Check your own state pension or Social Security amount with the official service in your country; don’t rely on general figures.
Inflation: why the budget is in today’s money
Prices usually rise over time, so the same lifestyle will cost more in the future. Keeping your budget in today’s money makes it easy to compare with what things cost now. The calculators then handle inflation explicitly:
- How much do I need? shows your target in today’s money and an inflated target for the year you retire. Example: with a hypothetical 2.5% a year for 15 years, a $1,000,000 target in today’s money becomes about $1,448,298 in money of that year.
- How long will my money last? raises your withdrawal with inflation every year.
The inflation rates in these examples are assumptions you choose, not forecasts. For how inflation is measured, see Retirement risks; current official figures are on our numbers pages.
Using your budget in the calculators
Once you have a yearly figure in today’s money:
- Target: enter it as “Yearly spending in retirement” in How much do I need?, with any other yearly income.
- Duration: enter it in How long will my money last? with your savings, to see how many years it could last at a steady return.
- Age: enter it in Can I retire at X? to compare your projected savings with the nest egg needed at a chosen age.
Then test a few variations: a budget 10% higher, a budget without the big trips, a different retirement age. Seeing how much the result moves is often more useful than any single number.
FAQ
How do I estimate my spending in retirement?
Start with what you spend in a year now, then adjust each category for life after work: commuting may fall, travel or healthcare may rise. Add irregular costs as a yearly average. Keep everything in today’s money.
Do expenses go down in retirement?
For some people yes, for others no; it depends on housing, health and plans. Official surveys can give a general picture: the US Bureau of Labor Statistics publishes Consumer Expenditure Survey tables by age group. They are averages, not a guide to your own budget.
Should I include healthcare and insurance?
Yes, as separate lines, because they can change a lot after work ends and differ strongly by country. Check what public cover applies to you with the official service in your country.
How do I handle one-off costs like a new car?
Spread them out: divide the expected cost by the number of years between purchases and add that amount to your yearly budget.
Can I use monthly amounts?
Our calculators use yearly amounts only. Multiply monthly figures by 12 before entering them.
Why is the budget in today’s money?
So you can compare it with what things cost now. The calculators handle inflation separately; for example, “How much do I need?” shows an inflated target for a later retirement year.
Sources
- U.S. Bureau of Labor Statistics, Consumer Expenditure Surveys: https://www.bls.gov/cex/ (accessed 2026-10-17). Supports: official US survey of household spending and income.
- U.S. Bureau of Labor Statistics, CE Tables: https://www.bls.gov/cex/tables.htm (accessed 2026-10-17). Supports: tables by age of reference person (incl. 55 to 64, 65 to 74, 75 or older), updated yearly.
- U.S. Bureau of Labor Statistics, Consumer Price Index: https://www.bls.gov/cpi/ (accessed 2026-10-17). Supports: what the CPI measures.
- Office for National Statistics, Inflation and price indices: https://www.ons.gov.uk/economy/inflationandpriceindices (accessed 2026-10-17). Supports: UK price indices (CPI, CPIH).
Last reviewed: 2026-10-17. See our methodology and editorial policy.
Educational estimate, not personal financial, tax or legal advice. Rules differ by country; verify with official sources or a licensed professional. See our disclaimer.