Retirement budgeting compares expected income with planned expenses to determine whether expenses fit with available income. The process begins by listing your income sources and savings and estimating how much they can provide each year. To show how retirement budgeting works, let’s break down an example retirement profile with $1.1 million in a 401(k), $80,000 in other savings, and $2,800 per month in Social Security.
A financial advisor can help evaluate how these income sources and assets will interact with projected expenses over time.
A retirement budget is made up of two parts: expenses and income. Creating a budget involves keeping both sides in balance so that expenses don’t exceed income. Income typically includes benefits paid by Social Security, as well as income from sources such as investments, private pensions, annuities and part-time employment. Expenses include all major living expenses such as housing, transportation, food, taxes, and health care.
Creating a budget can start by calculating your expenses. Retirement planners can use rules of thumb to estimate these expenses, such as stating that retirement expenses are typically about 75% of your last year of working income before retirement. Another, more customized approach is to add up actual current spending and subtract spending that might disappear. These may include expenses such as commuting, work-related clothing, etc.
The budgeting process can also start with income. The first step is usually to calculate Social Security income and then estimate the likely amount that can be withdrawn from the investment portfolio. SmartAsset’s Social Security Calculator can help with the first part of this step. SmartAsset’s investment calculator can estimate how much a portfolio will grow by the time retirement rolls around, based on its size and average annual growth rate.
Just as a percentage of preretirement income can provide a rough guide to likely expenses in retirement, a rule of thumb called the 4% safe withdrawal rate helps calculate how much money to safely withdraw from a conservative portfolio without risking running out of money. To get your first year’s withdrawal using this method, multiply your portfolio balance by 4%. Do the same thing next year, increasing the amount based on the rate of inflation. This practice produces an inflation-adjusted income stream that is unlikely to be exhausted within 30 years.
Once you’ve filled in the numbers on both sides of your budget, you can think about ways to make adjustments as needed or needed. For example, you may need to cut expenses or increase the growth rate of your investments. It is important to maintain a balance between income and expenses so that you do not plan to spend more than you have budgeted for.
Retirement budgeting compares income from sources such as Social Security and investments to ongoing living expenses.
SmartAsset and Yahoo Finance LLC may earn commission or revenue from the links below.
Your monthly Social Security benefit of $2,800 is equivalent to $33,600 ($2,800 x 12 months), which is adjusted annually to protect you from inflation. At a 4% withdrawal rate, you can withdraw $44,000 ($1.1 million x 4%) from your 401(k) account. The income will also be adjusted annually to avoid losing purchasing power due to inflation.
Total annual income of $33,600 from Social Security and $44,000 from investments is $77,600. But, you may ask, is this enough? If your retirement expenses are typical, it probably will. Based on your $2,800 monthly Social Security benefit, your current income is likely about $84,000 (the Social Security Administration says the benefit “will replace approximately 40% of your annual pre-retirement income,” but this will obviously vary based on your specific income)1. Based on the 75% preretirement income guideline, more than $63,000 per year would meet the needs of a typical retiree.
Most retirees are not exactly average, and your lifestyle may require more income. You may be able to earn more by changing your portfolio’s asset allocation to a 50/50 mix of stocks and fixed income (the scenario used to generate the 4% safe withdrawal guideline). A more aggressive asset allocation that includes more stocks would allow you to safely withdraw 5%, increasing your first-year investment income by approximately $11,000 to $55,000 ($1.1 million x 5%).
Another move you can take to increase your income is to delay retirement. Your benefits will increase by about 8% each year you wait to apply for Social Security until age 702. If you wait until that age to receive benefits, your monthly check could increase to $3,696 per month ($2,800 x 132.0% for ages 70 and older) or $44,352 per year ($3,696 x 12)3.
Waiting for retirement can also allow your portfolio to grow. Using SmartAsset’s investment return calculator, if you assume an average annual return of 7%, your portfolio could grow to $1,347,547 in three years, allowing for a 4% withdrawal in the first year of approximately $53,901 ($1,347,547 x 4%).
You can also make changes to affect the cost aspect. A common strategy is to downsize or move to a lower-cost city. Housing is often the largest expense in retirement, and housing is also a living expense that varies by location. Therefore, retiring to an area with a lower cost of living can be a great way to take your retirement income even further.
Taxes are generally less important for retirees because their income typically declines after they stop working. Required minimum distributions (RMDs) that begin after age 73 may push you into a higher marginal income tax bracket. If you want to be in a higher position when you retire, you may want to explore a Roth conversion. This will allow tax-free withdrawals and eliminate RMDs on your Roth balance, but you may now be subject to hefty taxes.
An emergency savings account can help you feel confident you can handle any unexpected expenses that arise, and help you avoid having to take out an expensive loan to cover costly unexpected expenses. Your $80,000 in taxable savings can fund this. A typical emergency savings account covers three to six months of expenses, which would cost about $15,750 to $31,500, assuming your annual retirement expenses are about $63,000. You can deposit this amount into a savings account or other safe, liquid instrument and invest the balance.
Healthcare is the last area to consider. Long-term care, if needed, can be expensive. While long-term care insurance can help cover the costs of nursing homes and other long-term care, the premiums can be high, and generally speaking, the sooner you apply, the better your chances of getting approved for coverage.
A rough estimate suggests your expected retirement income will be close to the amount needed to cover typical retirement expenses.
A rough estimate of the income side of your retirement budget suggests that using a 4% safe withdrawal rate, you would have $77,600, including $33,600 from Social Security and $44,000 from investments. As a guideline, annual retirement expenses are typically about 75% of your pre-retirement annual income, and assuming you’re making $84,000 per year now, you’ll probably need income very close to that estimate to cover your expenses. You can put $80,000 in savings into an emergency account and invest it. If you need to reduce expenses, consider downsizing or relocating. Waiting to delay retirement can be an effective way to increase your income.
A financial advisor can help you determine the best time to retire and manage other factors to maximize your benefits. Finding a financial advisor isn’t difficult. SmartAsset’s free tool matches you with vetted financial advisors serving your area, and you can have a free introductory call with your advisor to decide which one you think is the best fit for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started today.
If you want to keep growing your savings, consider setting up automatic transfers from your checking account to your savings account. This approach can help you make saving a regular part of your financial life.
Preparing for Retirement: A Fact Sheet for Workers Aged 18-48. https://www.ssa.gov/myaccount/assets/materials/workers-18-48.pdf. Accessed: January 8, 2026.
↩
︎
Securing Today and Tomorrow: Retirement Benefits. https://www.ssa.gov/pubs/EN-05-10035.pdf. Accessed: January 8, 2026.
↩
︎
Social Security Administration: If you were born between 1943 and 1954, your full retirement age is 66 . https://www.ssa.gov/benefits/retirement/planner/1943-delay.html. Accessed: January 8, 2026.
↩
︎
What is a realistic retirement budget? The post I’m 66, have $1,100 in a 401(k), and $80,000 in savings, I’ll have $2,800 in Social Security appeared first on SmartReads by SmartAsset.
