Learn how to build a monthly retirement budget that matches your fixed income, covers healthcare and inflation, and helps your savings last.
October 14, 2026
Say you're one month into retirement. The paycheck has stopped, but the electric bill, the grocery run, and the Medicare premium haven't. Your income now comes from Social Security and whatever you pull from savings.
A retirement budget works differently because some costs reset every January. The standard Medicare Part B premium rose to $202.90 a month in 2026, according to the Centers for Medicare & Medicaid Services (CMS). A cash cushion helps, and comparing high-yield savings accounts is a practical first move for money you'll spend in the next year or two.
This guide shows you how to budget in retirement, step by step. You'll turn Social Security, pensions, and savings into a steady monthly retirement paycheck.
To build a retirement budget, total your monthly income, list your expenses, and sort them into essential and discretionary spending. Cover essentials with reliable income like Social Security. Fund the rest from savings at a sustainable withdrawal rate, and review the plan every year.
Think of it as a paycheck you write yourself. An employer used to set what landed in your account each month, and now you do.
The six steps:
Total your reliable monthly income.
Estimate your monthly spending from real statements.
Split expenses into essential and discretionary.
Cover essentials with reliable income and find any gap.
Set a sustainable withdrawal rate for savings.
Review the budget every January.
Your monthly retirement income is every reliable payment you expect, after Medicare premiums and taxes. Common sources:
Social Security retirement benefits
Pension and annuity payments
Part-time or consulting work
Rental income
Withdrawals from savings (covered in Step 5)
Social Security benefits rose 2.8% for 2026, about $56 a month for the average retiree, according to the Social Security Administration (SSA). The SSA estimated the average retirement benefit at $2,071 a month in January 2026, though it changes monthly. The SSA announces each new cost-of-living adjustment (COLA) in October, so check the SSA's COLA page for the 2027 figure.
Claiming age matters. Full retirement age is 67 for anyone born in 1960 or later, and waiting until 70 pays 124% of your full benefit, per the SSA. About 87% of people 65 and older receive Social Security, according to a July 2025 SSA fact sheet.
Budget on net. Medicare Part B premiums are often deducted from Social Security, so subtract $202.90 a month plus any taxes before you plan your spending.
You'll likely spend close to what your recent statements show, adjusted for life after work. Total three to 12 months of bank and card statements by category. Commuting, payroll taxes, and retirement contributions usually fall away, while healthcare and travel often grow.
Households headed by someone 65 or older spent $61,432 in 2024, about $5,100 a month, per Bureau of Labor Statistics (BLS) Consumer Expenditure Surveys. Housing is the largest spending category for U.S. households, averaging 33.4% of total spending in 2024, per the BLS.
Give healthcare its own line. Fidelity's 2026 estimate says a 65-year-old may need $185,500 in after-tax savings for healthcare in retirement. That figure assumes Original Medicare and no employer retiree coverage, and it excludes long-term care.
Don't forget irregular retirement expenses like a car, a new roof, dental work, or hearing aids. Divide each cost by the months until you'll need it, and add that sinking-fund line to your retirement budget worksheet.
Essential expenses are bills you must pay even in a bad market year, while discretionary expenses are ones you can trim. This split drives every later step.
Essential expenses | Discretionary expenses |
Housing (mortgage or rent, property tax, insurance) | Travel |
Utilities and phone | Dining out |
Groceries | Hobbies |
Medicare and other insurance premiums | Gifts and giving |
Out-of-pocket healthcare | Subscriptions and streaming |
Transportation | Entertainment |
Taxes and minimum debt payments | Home upgrades |
If markets fall, you can pause a trip, but not a property tax bill. The essential list shows how much income needs to be reliable.
Compare your essential total to your Social Security, pension, and annuity income, then close any shortfall, known as your floor gap. The idea comes from retirement researcher Wade Pfau's safety-first approach. It builds a dependable income floor for essentials first, then uses investments for discretionary goals.
Common ways to close a floor gap:
Delay Social Security to raise your monthly benefit
Work part time for a few more years
Lower fixed costs by downsizing or refinancing
Consider an income annuity that turns part of your savings into regular payments
Savings cover whatever remains, as Step 5 explains.
You can withdraw about 3.9% of your savings in year one and adjust for inflation afterward, based on Morningstar's safe withdrawal research for 2026, published in December 2025. That base case, up from 3.7% a year earlier, applies to portfolios holding 30% to 50% in stocks over 30 years, with a 90% chance of not running out of money.
The familiar 4% rule traces to financial planner William Bengen's 1994 article in the Journal of Financial Planning, as CNBC reported in 2025. His original research found a 4.15% first-year withdrawal, adjusted for inflation, lasted 30 years historically under specific portfolio assumptions.
Say you're retiring with $500,000 saved (an illustrative example). At 3.9%, you'd withdraw $19,500 in year one, or about $1,625 a month. At 5%, you'd get about $2,083 a month, roughly $458 more.
But a 5% start exceeds Morningstar's base case, raising the risk of running out early, especially after a market drop.
Required minimum distributions (RMDs) generally start at 73, per the IRS, and the age rises to 75 in 2033, according to the Congressional Research Service. Withdrawals from traditional retirement accounts are taxable, so budget for the tax bill.
Many retirees also use a bucket strategy, first developed by wealth manager Harold Evensky in 1985, according to Capital Group. Bucket sizes vary, but a simple version keeps one to two years of withdrawals in cash, such as a high-yield savings account.
Review your retirement budget at least once a year, ideally each January, when key numbers reset. Your checklist:
Your new Social Security amount after the COLA
New Medicare premiums and any income-related surcharge (IRMAA)
This year's RMD amount
Insurance renewals
Property tax bills
Compare your cost increases to inflation: consumer prices rose 3.4% over the 12 months ending August 2026, according to the BLS. Check discretionary spending quarterly so small overruns don't snowball.
Most familiar budgeting methods work on a fixed income once you adapt them to spending down savings instead of building them.
Method | How it works in retirement | Well-suited for | Watch out for |
50/30/20 (adapted) | 50% essentials, 30% flexible, 20% buffer, sinking funds, and giving | Retirees who want a simple split | Essentials may top 50% on a lean income |
Zero-based | Give every dollar of monthly income a job until you reach zero | Tight budgets with little slack | Takes time and attention each month |
Bucket strategy | Hold near-term withdrawals in cash and keep the rest invested | Retirees drawing from a portfolio | Refilling the cash bucket needs a plan |
Floor-and-upside | Match essentials to reliable income and fund extras from savings | Retirees worried about market swings | Requires closing the floor gap first |
With 50/30/20, the 20% savings slice becomes a buffer, sinking funds, and gifts once you're drawing down.
Our guides to the 50/30/20 budget and zero-based budgeting go deeper. For tracking, our budgeting apps guide covers apps that link bank and retirement accounts.
A sample monthly retirement budget lists net income first, then expenses tagged essential or discretionary. Say you're a single retiree with a paid-off home and the average Social Security benefit.
Your income is $2,071 in Social Security (the SSA's January 2026 average), minus the $202.90 Part B premium (CMS), plus $1,000 from savings. That's about $2,868 a month. All other figures are illustrative.
Category | Monthly amount | Type |
Housing (property tax, insurance, upkeep) | $900 | Essential |
Utilities and phone | $280 | Essential |
Groceries | $450 | Essential |
Supplemental insurance and out-of-pocket healthcare | $300 | Essential |
Transportation | $250 | Essential |
Sinking fund (car, home repairs, dental) | $150 | Essential |
Tax set-aside | $60 | Essential |
Dining out and entertainment | $150 | Discretionary |
Travel fund | $150 | Discretionary |
Gifts and giving | $100 | Discretionary |
Hobbies and subscriptions | $78 | Discretionary |
Total | $2,868 |
In this retirement budget example, essentials total $2,390, and net Social Security covers $1,868. Savings fill the $522 floor gap plus $478 in extras.
The total runs about $2,250 below the roughly $5,100 a month that households 65 and older averaged in 2024, per BLS data. At Morningstar's 3.9% rate, a $1,000 monthly withdrawal implies about $308,000 saved.
Spending tends to fall as retirement goes on, though healthcare costs may push it up late in life. David Blanchett's 2026 paper in Financial Planning Review finds inflation-adjusted retiree spending tends to decline. Whether it rises again later (a "smile") or keeps falling (a "smirk") depends on whether you look at the average or the median retiree.
Phase | What tends to change | Budget move |
Early active years | Travel and hobbies peak | Fund a travel line and cap it yearly |
Middle years | Discretionary spending eases, and RMDs start at 73 | Plan for RMD taxes |
Later years | Healthcare and care costs grow | Build a care fund and review coverage |
Thinking about needing daily care, for yourself or a spouse, is hard, and many people put it off. Planning ahead can protect your choices and your family.
Someone turning 65 has a nearly 70% chance of needing long-term care, per 2020 federal health department (HHS) data reported by CNBC in 2026. CareScout's 2025 Cost of Care Survey put national medians at $74,400 a year for assisted living and $129,575 for a private nursing home room.
You protect a retirement budget from surprises with three layers: an emergency fund, sinking funds, and fraud defenses.
Fidelity's general guideline is emergency savings that cover three to six months of essential expenses. That rule was built for workers who could lose a paycheck. With steady Social Security or pension income, some retirees choose a smaller cushion, but keep enough for deductibles and repairs you can't push off. Keep it separate from your cash bucket so a surprise bill doesn't eat next year's withdrawals; our emergency fund guide covers where to keep it. Sinking funds from Step 2 handle known costs like a roof.
Fraud is a budget risk too. People 60 and older reported more than $7.7 billion in losses in 2025, up about 59% from 2024, per the FBI's Internet Crime Complaint Center (IC3). Basic protections help:
Set up transaction alerts on every account
Verify callers by hanging up and dialing a known number
Pause before moving money at anyone's urgent request
Before opening new accounts, read our guide on whether online banking is safe.
Find the profile that matches you:
If you're five to 10 years from retiring, run the budget now and see how much to save for retirement.
If you just retired, focus on Steps 1-4 and your first January reset.
If you rely mostly on Social Security, prioritize your floor gap and cutting fixed costs.
If you have a large portfolio, focus on your withdrawal rate, RMDs, and taxes.
If you're helping an aging parent, start with the sample budget and fraud protections.
Your next step is to run your own numbers through the six steps and set up supporting accounts.
Park your near-term cash bucket with help from our high-yield savings account guide.
Pick a tracking method with our budgeting apps guide.
Check savings targets with our guides to retirement savings and financial milestones by age.
Review your coverage with our guide to life insurance in retirement.
To recap, total your net income, sort essentials from extras, and cover essentials with reliable income. Then withdraw at a sustainable rate and reset your retirement budget each January.
Popularized by CFP Wes Moss, it says you need about $240,000 saved per $1,000 of monthly income, assuming a 5% withdrawal rate. It isn't inflation-adjusted and exceeds Morningstar's 3.9% base case, so test it against the Step 5 example.
Housing is the largest spending category for U.S. households overall, averaging 33.4% of total spending in 2024, according to the BLS. Healthcare's share rises with age, which is why Step 2 gives it a separate line.
Your monthly budget should match your net income after Medicare premiums and taxes. Households 65 and older averaged about $5,100 a month in 2024, per BLS, versus the leaner $2,868 sample budget.
Fidelity's general guideline is three to six months of essential expenses, kept apart from your withdrawal cash. Retirees with steady Social Security or pension income may choose less. Base the amount on the essential total you built in Step 3.
Blanchett's research finds inflation-adjusted spending tends to fall over time, though care costs may offset that late in life. The spending-phase table shows how to plan for each stage.
This guide relies on secondary research, and no proprietary BestMoney survey was used. BestMoney's editorial team reviewed 2026 SSA and CMS releases, 2024 BLS spending data, Morningstar's safe withdrawal research for 2026, and EBRI's 2026 confidence survey. We also used FBI IC3 2025 elder fraud data, Fidelity's 2026 healthcare estimate, and CareScout's 2025 cost survey.
Social Security Administration, 2026 COLA release, Oct. 24, 2025
Social Security Administration, delayed retirement page, 2026
Social Security Administration, OASDI fact sheet, July 22, 2025
Centers for Medicare & Medicaid Services, 2026 Part B fact sheet, Nov. 14, 2025
Bureau of Labor Statistics, Consumer Expenditure Surveys via FRED, Dec. 19, 2025
Congressional Research Service, RMD rules for original owners
Morningstar, safe withdrawal rate research for 2026, December 2025
Retirement Researcher (Wade Pfau), safety-first school, 2019
Fidelity Investments, Retiree Health Care Cost Estimate, March 13, 2026
Employee Benefit Research Institute, Retirement Confidence Survey, April 21, 2026
The BestMoney editorial team is composed of writers and experts covering a full range of financial services. Our mission is to simplify the process of selecting the right provider for every need, leveraging our extensive industry knowledge to deliver clear, reliable advice.
