Retirement should be a time to enjoy the fruits of your labor — whether that means traveling, trying out new hobbies, or spending more time with family. But worrying about how long your savings will last can overshadow this period. That’s why understanding your average monthly retirement expenses is essential. 

Creating a retirement budget early helps you understand how much you may need to save before you stop working. Here are some tips for building a retirement plan that accounts for inflation, healthcare costs, and lifestyle changes.

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How to create a retirement budget

Breaking down your expenses into clear categories can make budgeting easier. In our sample retirement budget, we use “needs,” “wants,” and “wishes” to help you organize and prioritize your retirement spending. It could be a good idea to start creating a budget now, even if you are not ready to retire. If you have ever created a budget before, a lot of these items and expenses should be familiar to you. 

Needs

Needs are the nonnegotiable retirement expenses you’ll have to cover in retirement, and these costs can have a significant impact on your monthly income. Remember to also account for inflation, as prices for essential living costs will likely rise over the course of your retirement. Here’s what to consider:

• Housing: Decide whether to stay in your current home or move. If your mortgage has been paid off, it may be worth staying put. Otherwise, consider downsizing to reduce housing costs. Keep in mind that selling a home involves fees and taxes, cutting into your proceeds. In addition to mortgage or rent payments, include property & school taxes, insurance, and utilities in your monthly housing estimate. 
• Food: Calculate your average monthly grocery bill, and include dining out expenses. Some may say to only include the grocery bill as dining out is not ‘needed.’ If you don’t think this is ‘needed’ for you, be sure to include this in the entertainment category of Wants below. 
• Transportation: If you intend to keep a car, estimate monthly costs such as loan or lease payments, insurance, and gas. Also, plan for expenses that aren’t as consistent, like tolls and repair fees.
• Insurance and medical care: Ongoing healthcare expenses can add to the cost of retirement. Even with Medicare, you may need to pay out of pocket for prescriptions, routine medical services, and supplemental insurance. 
• Emergencies: Unexpected expenses can arise at any stage of retirement, from unforeseen home repairs to urgent medical needs. It’s vital to set aside a portion of your budget for these to avoid disrupting your financial plan. 

Wants

Wants aren’t essential for basic living, but they can add enjoyment and flexibility to your retirement lifestyle. Below are a few to consider:

• Travel: Whether you’re visiting family, exploring new destinations abroad, or relaxing on a cruise ship, travel typically involves more substantial expenses than day-to-day living. Include aspects like plane tickets and hotel stays when estimating your travel budget.
• Entertainment: This category covers everything from streaming services to club memberships. Even small daily pleasures — like a morning coffee and pastry — can add up.
• Hobbies: Many hobbies come with recurring costs, like subscriptions, membership fees, and supplies, so ensure you include these in your monthly budget. 

Wishes

Wishes are larger, often one-time purchases. If you choose to leave room in your budget, here are a few additional expenses you might want to account for:

• Legacy planning: If you plan to leave an inheritance for your loved ones, it’s especially important to estimate your retirement expenses and stick to your budget. This can prevent unintended withdrawals and protect the funds you’ve set aside for your heirs.
• Big-ticket purchases: You might be dreaming of taking a round-the-world cruise or buying a boat, but making a significant purchase requires careful planning. Set money aside in advance, and factor in additional costs like fees and taxes if applicable. 
• Dream goals: Retirement might be the time to pursue a lifelong ambition, such as starting a charitable foundation or traveling across the country in an RV. Set aside dedicated funds for your high-cost goals to keep your overall budget balanced. 

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Mistakes to avoid when budgeting for retirement

Even the most detailed retirement budget can fall short if you overlook key factors. These are some of the most common pitfalls when building a sustainable retirement plan. 

Underestimating medical costs

As you age, healthcare expenses typically increase, often faster than general inflation. The costs you face in your 50s may be much lower than what you’ll pay in your 60s and 70s, so it can be vital to plan for increasing medical spending over time. Reviewing your health history and researching average healthcare spending by age can help you estimate these costs. 

Forgetting inflation

Many people plan for a 2% inflation rate, as this is the optimal rate for healthy economic growth. Over the span of a retirement, periods of higher inflation can throw off retirement budgets. Even average inflation can significantly erode purchasing power if you don’t account for it. Adjust your retirement budget annually to reflect actual rates and build a buffer for unexpected spikes in living costs. 

Failing to budget for leisure or legacy goals

If you don’t budget for large expenses, such as travel, major purchases, and inheritance planning, you may drain your retirement funds more quickly or be forced to take on unnecessary debt. Be proactive about adding these items to your budget. 

Not adjusting spending to lifestyle changes

Retirement isn’t a static phase — your needs and expenses are bound to evolve. For instance, you might move, and you could spend more on long-term care as you age. Review and update your budget regularly to reflect any changes and stay aligned with your long-term goals. 

Relying too heavily on market-dependent income

Market volatility can reduce the value of your portfolio, so it’s important to diversify your investment strategy. Consider a balance of growth-oriented investments with products like fixed annuities that offer predictable income to cover your monthly expenses. 

Why retirement budgeting matters

In retirement, income sources like Social Security, pensions, and annuities often provide fixed payments. However, your expenses can shift dramatically over time. Without a clear plan, it can be easy for monthly costs to outpace income, forcing you to dip into savings sooner than expected. A proactive budget helps you understand how much you can safely spend and where to cut back if needed. It can also give you peace of mind knowing your retirement income is able to support your lifestyle, helping you navigate this phase of life with less stress. 

Enjoy retirement on your terms with Gainbridge

A smart retirement budget starts with reliable income. Gainbridge’s annuities can provide steady growth, helping you create a realistic plan for the future that aligns with your lifestyle expectations. With no hidden fees or commissions, our platform helps you make the most of your savings. Explore your investment options with Gainbridge today. 

‍This article is intended for informational purposes only. It is not intended to provide, and should not be interpreted as, individualized investment, legal, or tax advice. For advice concerning your own situation please contact the appropriate professional. The GainbridgeⓇ digital platform provides informational and educational resources intended only for self-directed purposes.