Ask The Experts: How Do I Create A Realistic Retirement Budget?

Retirement is a new chapter in your life, and your budget will need to reflect that. Some expenses will decrease — like commuting costs and work clothes — while others, like health care and hobbies, will likely increase. A thorough retirement budget helps you plan ahead so you aren’t caught off guard and forced to make sacrifices later. 

So, what will your retirement budget look like? To create a precise plan based on your individual financial situation, you should consider working with a financial advisor.

For a general estimate, financial advisors shared with Bankrate how much their clients usually spend on major categories, like housing and health care. This article breaks down different factors that influence how much you might spend on each budget line item, along with tips for reducing costs. 

What will my retirement budget look like?

A general rule of thumb when it comes to budgeting is the 50/30/20 rule: 50 percent of your budget covers needs, 30 percent goes toward wants and 20 percent is earmarked for savings or debt. 

But once you retire, you may find the 50/30/20 rule doesn’t fit quite right. For example, you’ll no longer need to save for retirement, so that 20 percent bucket may be better allocated to things like taxes and health care. And if you’ve paid off your mortgage, the 50 percent you once put toward necessities like housing may go down. 

“Instead, I would focus on the total amount you need each month to fund a fulfilling retirement,” says Joe Conroy, a certified financial planner and founder of Harford Retirement Planners.

He says the easiest way to come up with that number is by adding up how much money gets deposited into your bank account from work and other sources of income each month. Then, work backward to find sources of retirement income to replace your working paycheck, whether that’s Social Security, a pension, withdrawals from retirement accounts or even an annuity.  

“By creating an income plan that deposits that amount each month, you don’t have to change your lifestyle,” says Conroy. 

Every retiree’s budget is unique, so the percentages below are merely guidelines. Speaking with a financial advisor is the best way to fine-tune and personalize your retirement budget. Bankrate’s Advisor Matching Tool can connect you with a certified financial planner in minutes. 

“Retirement shouldn’t rely on generic averages,” says Daniel Goodman, a certified financial planner and owner of Good Better Best Financial Planning “A good advisor helps you align your savings, investments and withdrawal strategies with your actual lifestyle goals — whether that’s a tropical getaway or a laid-back staycation.”

Housing (including maintenance): 20-30%

Housing and utilities are probably your biggest expense right now, and that may remain true after you retire. 

Experts suggest setting aside at least 10 percent of your retirement budget for housing, up to as much as 40 percent. 

Factors affecting costs:

• Whether you own or rent
• Whether your mortgage is paid off
• Geographic location (urban versus rural, high-cost versus low-cost state)
• Property taxes
• Maintenance costs for an aging home

Downsizing is a common way to cut housing costs in retirement. Moving to a smaller home, a tiny house or even an RV can free up cash fast. 

You’ll save on rent or mortgage payments, lower your utility bills and have fewer maintenance headaches. Similarly, relocating to somewhere cheaper can also help stretch your retirement savings.

If you love your current home, making extra payments on your mortgage in the years leading up to retirement can free you of a major recurring expense.

Other options include refinancing your current mortgage if interest rates drop in the future, or if extra cash flow becomes essential in retirement, exploring a reverse mortgage. Another smart move is exploring property tax relief programs, which are available for people over 65 in many states. 

Renting out your home through an app like Airbnb while you’re away traveling or taking on a roommate can also create passive income and help cover housing costs. 

“The key is to stay open to optimizing your plans around your needs,” says Goodman. 

Reducing maintenance expenses is another way to save. The best way to lower this cost, says Conroy, is to do more of the work yourself.

“Maybe you were too busy to mow the yard every week, but in retirement you have time to do it and save the $200 to $500 per month,” he says. 

Health care: 10-15%

Health care costs rise with age, so you’ll almost certainly spend more on insurance premiums, out-of-pocket expenses and prescription drugs than you do now. In fact, according to Fidelity, a 65-year-old retiring in 2024 could expect to spend an average of $165,000 on health care and medical expenses throughout retirement. 

Factors affecting costs:

• Pre-existing conditions and chronic illnesses
• Your Medicare plan along with any other supplemental coverage, like Medicaid or a Medigap policy
• Long-term care needs 

At age 65, you become eligible for Medicare, the federal health care program that insures 68 million Americans. But Medicare isn’t free — the standard Part B premium alone is $185 a month in 2025. On top of that, you might pay premiums for your Part D prescription drug plan and/or a Medigap policy, if you have one. You’ll also need to set money aside for things like dental care and eyeglasses — Medicare rarely covers those costs. 

Choosing the right Medicare plan can make a big difference in your health care budget. You can compare different plans side-by-side using the Medicare Plan Finder tool, which can, among other things, give you an estimate of the out-of-pocket cost of your current prescription drugs at your preferred pharmacies. 

While the plan finder is helpful, speaking with an expert can give you more personalized guidance. The State Health Insurance Assistance Program (SHIP) offers free, one-on-one counseling from trained nonprofit volunteers. Whether you’re enrolling for the first time or looking for a better plan, they can guide you through the process — at no cost. You can find the number for your state’s SHIP here.

There’s another new health care cost you’ll also need to consider: long-term care. An estimated 70 percent of people will require long-term care at some point in their lives, and the cost of assisted living and nursing home care is outrageously expensive. The national annual median cost of a private room in a nursing home was $116,800 in 2023, according to GenWorth, the largest provider of long-term care insurance in the U.S. 

Unfortunately, Medicare doesn’t cover long-term care, making it even more crucial to set aside extra money while you’re still working and factor in these potential costs as you create your retirement budget. 

Transportation: 10-15%

You might be leaving your daily commute in the rearview mirror, but transportation expenses can still take a toll on your retirement budget. 

Factors affecting costs:

• Whether you own a car or use public transportation
• How often you drive and the fuel efficiency of your vehicle 
• Gas prices
• Vehicle maintenance 
• Car insurance premiums

Driving a more affordable and fuel-efficient car is one way to cut transportation costs. It’s also worth checking to see if your auto insurance company offers any discounts for retirees. Bundling policies or lowering coverage on an older vehicle can also save money on car insurance.

In some cases, getting rid of your car all together can make a lot of financial sense, especially if you live in a two-car household and your spouse or partner is also retired. Plus, some Medicare Advantage plans now offer free rides to medical appointments. Or if you have a disability, you might qualify for paratransit in your area. These services provide door-to-door rides within your county or region for roughly the same price as a public bus ticket. 

Groceries and eating out: 10-15%

The nice thing about this category is it’s easier to control and adjust. Unlike cutting housing costs, which could mean selling your home or taking on a roommate, cutting grocery and dining costs can be as easy as using coupons, meal prepping or signing up for grocery store loyalty programs.

Factors affecting costs:

• Dietary restrictions or special food needs
• Frequency of dining out versus cooking at home
• Where you dine and grocery shop
• How often you utilize grocery discounts and deals

There are other ways to spend less on groceries, too — like joining a community garden or starting your own garden. Social media is also full of grocery-saving hacks — check out Facebook groups, TikTok creators and Instagram accounts dedicated to budget-friendly shopping.

Dining out doesn’t have to be exiled from your budget, but being mindful and intentional about your restaurant choices can add breathing room to your budget. 

If you’re on a very tight budget, it’s worth seeing if you qualify for programs like Meals on Wheels, or if your Medicare Advantage plan covers any food-delivery services. Some nonprofits may even provide grocery delivery if you’re homebound. 

Taxes: Varies

Even in retirement, taxes are a dreaded four-letter word. And since you’ll be living on a fixed income, it’s even more important to factor taxes into your retirement budget. This can include income tax on Social Security, pensions and retirement account withdrawals, as well as property taxes and required minimum distributions.

More than any other category, experts emphasize that taxes tend to vary significantly from person to person. Some experts estimate taxes could take up 15-25 percent of your budget, while others put it closer to 3-10 percent. But even that doesn’t capture the full spectrum. 

“I have some clients who pay no taxes and others paying 40 percent,” says Conroy. 

Factors affecting costs:

• Retirement income sources (tax-deferred versus tax-free accounts)
• State tax policies (some states tax retirement income, others don’t and eight states have no income tax at all)
• Required minimum distributions (RMDs) 
• Property value of your home
• Your overall income

To minimize your tax bill, it’s important to be mindful of how and when you withdraw money from retirement plans, including your 401(k) and IRA. 

“For example, spread out your withdrawals from retirement accounts to stay in a lower tax bracket,” says Christopher Stroup, a certified financial planner and founder of Silicon Beach Financial.

If you have a mix of Roth and traditional accounts, you can strategically draw from both to reduce taxes in years when you need extra cash flow. 

“If you haven’t already, consider converting a portion of your traditional IRA to a Roth IRA if it makes sense for your tax situation,” says Stroup. 

Moving to a tax-friendly state is another way to save money on taxes in retirement — some states don’t tax Social Security income or pensions. Even if relocating isn’t an option, taking advantage of available tax deductions can help lower the amount you owe. It’s also worth considering the best and worst times of year to retire for tax purposes.

Creating a tax-efficient retirement withdrawal strategy can be complicated. Working with a financial advisor or tax professional in this area especially could save you significant money over time — without needing to navigate IRS jargon on your own.

Travel: 5-15%

Many people envision a retirement full of travel and new experiences, but these costs can add up fast. 

“If you prefer a low-key retirement with minimal travel, you won’t need the same budget as someone who envisions frequent cruises and international adventures,” says Goodman. 

Factors affecting costs:

• How often you travel
• Your travel destinations 
• Mode of transportation (road trips versus international flights)
• Type of accommodations (luxury hotels versus budget stays)
• Use of senior discounts and credit card rewards programs

One of the best ways to save in this category is by traveling during off-peak seasons. Consider traveling during what’s known as the “shoulder season,” or the period between the peak season and the off-season. February and October, for example, tend to be less busy travel months, so you’ll often find better deals.

Taking advantage of senior discounts can also make a difference. Many airlines, hotels and cruise lines offer reduced rates for older travelers, and signing up for travel rewards credit cards can help stack up points for free flights and hotel stays. 

“If you want to travel extensively, you could relocate to a lower-cost region or even overseas to stretch your budget,” says Goodman. “For some retirees, living abroad reduces living and health care expenses, freeing up funds.”

If becoming an expat isn’t your ideal retirement scenario, you can always plan a staycation or short road trips to take your savings even further.

Hobbies and entertainment: 5-15%

Many soon-to-be retirees daydream about how they’ll fill their downtime, whether it’s gardening, attending community plays or practicing their golf swing. 

But a lot of leisure can lead to a lot of spending. 

“People generally spend more on the weekends than during the busy weekdays when they’re working,” says Conroy. “Once you’re retired, every day is a Saturday. That means entertainment spending and dining out is usually higher in retirement than when folks are working.” 

That’s why Conroy suggests being realistic with this budget category and planning for your “fun spending” to increase in retirement.

Factors affecting costs:

• Expense level of your hobbies (Golf is much more expensive than hiking, for example.)
• Membership fees for clubs or organizations
• What you like to do for fun

One way to save is by looking for free or low-cost activities and events. Host potluck dinners, start a murder mystery book club or take free classes at the library. Places like your local history center or favorite art museum might even offer steep discounts to attendees 65 and over. 

Volunteering is a great way to give back without spending money. Not only can it be a rewarding way to stay socially engaged, it might even come with neat perks, like free entry to a play when you usher at the community theater.

Bottom line 

A strong retirement budget helps your money last while letting you enjoy the life you want. Some costs will shrink, while others — like health care and taxes — may rise. A financial advisor can help you create a budget that works best for your individual needs.

Knowing what to expect, planning ahead and finding ways to cut expenses can stretch your savings further. The key is balance: Cover essentials, plan for surprises and leave room for fun.