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5 tips for retirement budgets

Make your retirement work for you

You dream of the day when you can bid adieu to the 9 to 5 grind. However, you must count the costs if you want retirement to work for you. Here are five tips to consider as the day gets closer:

1. Know what your monthly income will be

Retirement doesn’t stop your monthly bills, which can include — but aren’t limited to — housing, health care, food, clothing, transportation, entertainment, and travel. 

Since your retirement years can last 30 or more years, almost as many years as your working years, it’s important that you get a good handle now on what your monthly income will be later on so that you can cover your expenses. 

Hopefully, you’ve saved — or are on your way to saving — what you’ll need for retirement. Some experts say you’ll need 70 or 80 percent of your pre-retirement income every year that you’re retired. That means if you currently make $100,000 a year, estimate you’ll need $70,000 to $80,000 annually during your nonworking years.1 

Ideally, you’ll have several sources of income that will meet your needs. One of them is Social Security. Get a personalized estimate of your future payments here. Those who wait until age 70 to start collecting their Social Security will get a higher guaranteed monthly income stream and may not be as dependent on their investments.2 

Of course, you’ll need more to help supplement those Social Security checks. Consider an investment strategy that incorporates your risk tolerance, objectives, time horizon, tax situation among other factors.  Working with a financial professional can be helpful when considering a long term investment strategy. 

A pension or a fixed annuity can also be part of a retiree’s guaranteed income3 strategy. 

Retirement savings include but aren’t limited to a high-yield savings account, a traditional individual retirement account (IRA), a Roth IRA, a Simple IRA, a traditional 401(k) plan, a Roth 401(k), and a Simplified Employee Pension (SEP) plan.

Then there are stocks and bonds.

It’s hard to know how much to withdraw from your nest egg because of the unknowns — the length of retirement, spending needs, and investment returns.2 And you must account for inflation

 It's wise to work with a financial professional to create a distribution strategy that can be adjusted based on retirement plans and market volatility.  

Other considerations when thinking about a paycheck strategy include: tax efficiency (how the money you withdraw will be taxed), required minimum distributions (RMDs) that must be taken from tax-deferred accounts and some tax-free accounts starting at age 72, and the logistics needed to convert your investments into cash that funds your retirement paychecks.5

2. Have an emergency fund

Aim to have 12 months of expenses set aside in an emergency fund.6

If the market is on the downswing, you may want to dip into that rainy day fund instead of your retirement account.

Funds can also be used to cover large medical expenses not covered by Medicare or private insurance, home repairs, and any other unexpected expenses. 

Be sure to keep your emergency savings account someplace that’s easily accessible and protected from market volatility and withdrawal fees such as a high yield savings account or money market account.

3. Consider unexpected health care costs

An expense that is sure to increase is your health care. Some experts estimate that the average couple will need $295,000 to cover medical expenses during their retirement years.3 And this doesn’t even include long-term care.

You can prepare for it now by contributing to a health savings account (HSA), as long as you’re not on Medicare and eligible to contribute by participating in a high deductible healthcare plan. If you’re under age 55, you can contribute up to $3,600 annually (or $7,200 if you’re on a family plan). Those who are 55 and older can contribute an extra $1,000 a year. Distributions are tax-free as long as the money is used for a qualified medical expense.8 

During your working years, if you can let your HSA balance grow and compound over time, it will be a very useful resource to help pay for your medical expenses once you retire. Once you’re 65, you can also use it to cover non-healthcare expenses, without being penalized a 20 percent early withdrawal fee, however, income tax would be owed on the funds withdrawn.9  

4. What will change in retirement? 

Granted, some of your expenses will decrease (you won’t need as many fancy clothes for your fancy meetings). But some expenses, such as travel, could increase (at least for the first several years of your retirement) as you explore the world and visit all of the places on your bucket list.

If your bucket list includes far-off destinations such as New Zealand and Africa, make your journey to these places earlier in your retirement. A multiple-day flight might be harder to do as you get older.10

If travel is important to you and you want to do a lot of it, then try to do it when you can get more bang for your buck — look online for deals or visit in the offseason. 

5. Set up a plan and stick with it

Looking forward to a seven-day weekend for the rest of your life is thrilling — and a little daunting. So be sure to make your plans now so that it works for you when you reach your destination. Because once you get there, your new life is sure to take you many more places.

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1. Hartman, Rachel. “How to Create a Retirement Budget,” U.S. News, March 17, 2021. 

2. Iacurci, Greg. “Experts say the 4% rule, a popular retirement income strategy, is outdated,” CNBC, November 11, 2021. 

3. Guarantees are subject to the financial strength and claims paying ability of the issuing insurance company. 

4. Borzykowski, Bryan. “The ultimate retirement planning guide for 2022,” CNBC, January 18, 2022.  

5. Berger, Rob; Curry, Benjamin. “How to Create a Paycheck for Retirement,”, September 22, 2021. 

6. Knueven, Liz. “A financial planner explains how much you should have in emergency savings if you're retiring soon — and when to use it,” Business Insider, September 23, 2021.  

7. Lake, Rebecca. “What Amount Do Retirees Need in an Emergency Fund?” The Balance, December 12, 2021.  

8. Carlson, Bob. “The Power of Health Savings Accounts for Retirement Planning,”, September 27, 2021.  

9. Rodeck, David; Curry, Benjamin. “How to Make an HSA Part of Your Retirement Plan,”, March 4, 2021.  

10. Tigar, Lindsay. “How to Travel the World After Your Retire,” Real Simple, April 1, 2021. 


Investments will fluctuate and when redeemed may be worth more or less than when originally invested.

This information is a general discussion of the relevant federal tax laws provided to promote ideas that may benefit a taxpayer. It is not intended for, nor can it be used by any taxpayer for the purpose of avoiding federal tax penalties. Taxpayers should seek the advice of their own advisors regarding any tax and legal issues specific to their situation.


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