A great retirement budget does two things: it tells your money where to go, and it protects what you’ve already built. Below is a clear, up-to-date playbook, plus a realistic sample, to help you match steady income with real-world expenses and enjoy retirement without guesswork.
Key Takeaways (read this first)
Start with known income. List Social Security, pensions, annuities, and rental income. The average retired worker’s Social Security check was $2,006.69 in July 2025, but your benefit will differ. Social Security
Plan for health costs. A typical 65-year-old retiring in 2025 may spend about $172,500 on health care over retirement (excludes long-term care); budget monthly for premiums and out-of-pocket. Fidelity Newsroom
Choose a withdrawal rule. Morningstar’s latest research pegs a 3.7% “safe starting” withdrawal rate for a 30-year horizon; adjust as markets and needs change. Morningstar
Know your tax triggers. Up to 85% of Social Security can be taxable once your “combined income” crosses $25,000 (single) / $32,000 (married filing jointly). Consider withholding or quarterly estimates. Social Security
Don’t forget Required Minimum Distributions (RMDs). Most savers must begin RMDs at age 73; timing your first and second RMD affects taxes and cash flow. IRS
Reality-check spending. Older households spent ~$60,087 per year in 2023 on average; use this as a gut-check against your plan, then tailor to your region and lifestyle. FRED
How to Write a Retirement Budget (step-by-step)
1) Define your baseline and horizon
Pick a planning horizon (25–30 years for many retirees) and your lifestyle priorities (stay put vs. downsize, frequent travel vs. occasional trips).
Decide your risk comfort: fixed “paycheck” (pension/annuities) vs. flexible withdrawals.
2) Tally guaranteed income (after tax)
Add Social Security, pensions, annuity payouts, rental income, and part-time work.
If you want simplicity, elect withholding on Social Security so you’re not under-withheld at tax time. Social Security
3) Choose a portfolio withdrawal rule
As a conservative starting point, use 3.7% of investable assets in Year 1, then inflation-adjust. If you prefer flexibility, adopt guardrails: raise or cut withdrawals when your portfolio deviates from target. Morningstar
4) List essential monthly expenses (your “must-haves”)
Housing (rent/property tax/HOA/maintenance), utilities, groceries, transportation, insurance, health premiums & typical out-of-pocket, debt minimums, and income taxes.
Cross-check your totals against national spending norms for retirees so you’re not low-balling. FRED
5) Add lifestyle and “sinking funds”
Lifestyle: dining out, hobbies, gifts/charity, small luxuries.
Sinking funds: travel, home/auto repairs, dental/vision, technology replacements, and an annual insurance deductible set-aside.
Health: plan separately for dental/vision/hearing (often not fully covered by Medicare) and long-term care (not in Fidelity’s estimate). Fidelity Newsroom
6) Map taxes and RMDs
If you turn 73, model RMDs and their tax impact; coordinate Roth conversions before RMD age if appropriate. IRS
Remember Social Security tax thresholds when layering portfolio income over benefits. Social Security
7) Stress-test and iterate
Run a bad-market scenario (-20% stocks in Year 1), a high medical year, and a one-time big purchase (e.g., car roof replacement).
Build an “adjustments menu”: pause travel, trim dining, or temporarily reduce withdrawals if markets fall.
Sample Retirement Budget (Monthly)
Profile: Single renter, age 67, Original Medicare (Parts A/B/D), modest travel. Portfolio $415,000; uses a 3.7% starting withdrawal.
Income (monthly)
Social Security: $2,007 (uses July 2025 average as a placeholder; insert your own) Social Security
Part-time income: $400
Portfolio withdrawal (3.7%/yr on ~$415k): $1,280
Total Income: $3,687
Expenses (monthly)
Must-Haves
Rent: $1,100
Utilities (power/water/trash): $150
Internet/phone: $120
Groceries/household: $500
Transportation (fuel/maint./insurance): $300
Health premiums & typical out-of-pocket: $600 (aligns with Fidelity’s long-run cost reality) Fidelity Newsroom
Insurance (home/umbrella where applicable): $120
Estimated income tax set-aside: $80
Subtotal Must-Haves: $2,970
Lifestyle & Sinking Funds
Dining/entertainment/hobbies: $220
Gifts/charity: $60
Travel fund: $150
Home/auto repairs fund: $100
Dental/vision set-aside: $50
Tech replacement fund: $40
Subtotal Lifestyle/Sinking: $620
Total Expenses: $3,590
Monthly Surplus (to emergency buffer): $97
Why this works: It covers essentials, funds near-certain health costs, builds pots for irregular expenses, and keeps a small surplus to absorb surprises.
A simple template you can copy
Income: Social Security $; Pension/Annuity $; Work/Rental $; Portfolio Withdrawal $ (= starting rate × portfolio).
Must-Haves: Housing $; Utilities $; Food $; Transportation $; Health premiums/OOP $; Insurance $; Debt minimums $; Taxes $.
Lifestyle: Dining $; Hobbies $; Gifts/Charity $; Subscriptions $.
Sinking Funds: Travel $; Home/Auto $; Dental/Vision $; Big-ticket $; Deductibles $____.
Totals: Income $____ – Expenses $____ = $____ (Surplus/Gap).
Rules: Revisit quarterly; if gap > $100 for 2 months, trim lifestyle first; re-price health annually; re-set withdrawals each January.
Smart refinements (high-impact, low effort)
Sequence-risk cushion: Keep 6–12 months of withdrawals in cash so you’re not forced to sell in down markets.
Tax-aware withdrawals: In high-tax years (e.g., first RMD), spend more from Roth/cash and less from IRAs to manage brackets.
Medicare planning: Review Part D annually; drug formularies change and can swing costs.
Housing decisions: If rent or property taxes dominate your budget, model downsizing; housing is often the biggest swing item for retirees. FRED
FAQs
What’s a reasonable starting withdrawal rate today?
Morningstar suggests ~3.7% for a 30-year plan using forward-looking returns. You can often spend more by adding flexibility (guardrails, annuities, or partial delays). Morningstar
How much should I budget for health care?
There’s no one number, but Fidelity’s 2025 estimate for a new 65-year-old retiree is $172,500 over retirement (ex-LTC). Build monthly line items for premiums + routine out-of-pocket and keep a separate reserve for dental/vision/hearing. Fidelity Newsroom
When do RMDs start?
Generally at age 73. If you delay your first one to April 1 of the following year, you’ll still owe another by December 31—two in one calendar year can bump taxes. IRS
Will my Social Security be taxed?
Possibly. Up to 85% of benefits may be taxable when “combined income” exceeds $25,000 (single) or $32,000 (MFJ). Consider withholding to avoid a year-end bill. Social Security+1
Sources
Social Security Administration, Monthly Statistical Snapshot (July 2025) — average retired worker benefit. Social Security
Fidelity 2025 Retiree Health Care Cost Estimate — lifetime health-care projection for a 65-year-old. Fidelity Newsroom
Morningstar, “What’s a Safe Retirement Spending Rate for 2025?” — 3.7% starting rate. Morningstar
IRS, “Retirement topics – Required minimum distributions (RMDs)” — RMD age/timing. IRS
SSA, “Must I pay taxes on Social Security benefits?” — taxation thresholds. Social Security
FRED/BLS Consumer Expenditure Survey — average annual spending, 65+. FRED