How to Budget for Retirement: A Guide for Seniors

Professionally Reviewed by: Mark Zagurski, CLU®, ChFC®, CMFC® and CRPC®
Mutual of Omaha Director of Advisor Strategy and Operations

Summary: Planning for retirement involves making sure you have enough money saved by considering future expenses like healthcare and inflation. This article explains budgeting tips for retirees, including how to differentiate between what you need and what you want, and plan for unexpected costs.

Planning for retirement can seem daunting. You need to consider investment projections, rising healthcare costs, inflation, and more. Before you take the important step to retire, you want to be sure you have a realistic view of your current spending and how it might change once you retire.

You should also calculate how much you need to save by considering Social Security and other income sources. Breaking down the steps can help you better understand where you stand financially and what you need to retire comfortably.

Budgeting steps for retirees

Retirement budgeting is much like budgeting at any other time in your life. However, there are unique factors to consider when you calculate your finances.

1. Take a realistic inventory of your current spending

Often, people create budgets that work on paper but don’t account for actual spending habits, leading to overspending and end-of-month shortfalls. To get a realistic picture, review your bank and credit card statements from the past year. This approach gives you an accurate view of your average monthly spending across different categories.

2. Evaluate how your spending will change in retirement

Understanding your current spending is valuable, but it’s also important to know potential changes in your spending habits post-retirement. Healthcare expenses are likely to rise as you age, and you’ll engage more with Medicare and long-term care insurance, rather than private health insurance.

Some expenses may decrease. For instance, downsizing your home or paying off your mortgage can reduce monthly housing costs. It is essential that you consider these when you are budgeting for retirement.

3. Retirement budget planning: Wants vs. needs

Budgeting at any age involves examining essential versus discretionary expenses. As you prepare for retirement, this strategy remains, although your wants and needs may differ.

Here are common wants and needs in retirees’ budgets:

4. Don’t forget unexpected expenses, taxes and inflation

Besides monthly expenses, account for taxes, one-time expenses, and inflation in your retirement budget. Depending on your retirement accounts, you may owe taxes on withdrawals, which would reduce monthly spending power. Unexpected expenses, like a spouse’s passing, can disrupt plans. This means, plan to have enough liquidity or cash on hand for such expenses when needed. Inflation can also affect calculations, so you’d need to make sure your investments grow faster than inflation over a long retirement.

5. Figure out how much you need to save for retirement

Once you understand your retirement spending needs, calculate how much to save before retiring. Gather estimates of Social Security benefits and compare claiming against your own income versus claiming spousal Social Security benefits. Include income from pensions, annuities or other similar sources. Subtract this total from your monthly budget to determine what you’ll need from your portfolio, whether in tax-advantaged accounts like a 401(k) or IRA

TIP: Use the 401(k) retirement calculator to estimate your potential retirement income.

6. Improve your retirement quality of life.

If there’s a gap between savings and budget, consider adjusting your retirement age. Delaying retirement allows for additional savings and higher contribution limits as you age.

In 2025, those over 50 can contribute an extra $7,500 annually to their 401(k), and $11,500 more between ages 60 and 63. IRAs allow an additional $1,000 starting at age 50.¹

Delaying Social Security benefits also has advantages. While you can claim benefits at 62, benefits increase if you wait until full retirement age. For those born after 1959, the full retirement age is 67.²

Staying on track with your retirement finances

When deciding on a withdrawal amount from your investment portfolio, many financial experts recommend 4% to 5% of the total portfolio value instead of a fixed dollar amount.³ This way, you’re less likely to deplete your investments faster than they can grow. You can adjust the percentages based on market conditions and your personal needs in any given year.

Financial planning for seniors can be complicated. If you’re feeling overwhelmed by the process, you’re not alone in needing a little help. Whether you’re figuring out how much to save or how to stick to your budget as a retiree, Mutual of Omaha’s financial professionals can help guide you along the way.

To learn more, download your free Mutual of Omaha Advisors eBook, The Game of the Decade: Seven Plays for Winning the Most Important Ten Years to Retirement Success.

Frequently asked questions (FAQs)

How much are average monthly retirement expenses?

The Bureau of Labor Statistics reports average annual retiree expenses at $54,795, or $4,566 per month.⁴ Remember that this is an average; your expenses may vary.

What is the $1,000 per month rule for retirement?

This rule suggests having $240,000 saved for every $1,000 needed monthly, based on a 5% withdrawal rate. It’s a general calculation that may or may not apply based on your personal circumstances.

Is $3,000 per month enough for retirement?

Your individual budget will determine this, but the average expenditure is $4,566 monthly. However, be sure to include all benefits in your calculations. It’s not just your investments you’ll be drawing from; it’s also things like Social Security benefits and any pension or annuity income which may be available to you.

Professionally Reviewed by: Mark Zagurski, CLU^®, ChFC^®, CMFC^® and CRPC^®

Mutual of Omaha Director of Advisor Strategy and Operations

Mark is a director of strategy and communications at Mutual of Omaha. With more than 30 years of experience, he has worked extensively in advisor development, strategy, and communications, focusing on helping advisors and their clients make informed financial decisions. He is also the host of the Mutual of Omaha Advisors podcast, “Make it Personal,” which explores personal finance and strategies to help you take control of your money and future.

Disclosures:

Registered Representatives offer securities through Mutual of Omaha Investor Services, Inc., Member FINRA/SIPC. Investment Advisor Representatives offer advisory services through Mutual of Omaha Investor Services, Inc.  Mutual of Omaha Advisors is a division of Mutual of Omaha Insurance Company.

All investing involves risk, including the possible loss of principal, and there can be no assurance that any investment strategy will be successful.

Mutual of Omaha and its representatives do not provide tax and/or legal advice, and the information provided herein is general in nature and should not be considered tax and/or legal advice.

Not all Mutual of Omaha agents are registered representatives or financial advisors.

Sources:

1. Internal Revenue Service, 401(k) limit increases to $23,500 for 2025, IRA limit remains $7,000, November 2024
2. Social Security Administration, Retirement Benefits, April 2025
3. Fidelity, Ready to retire? You still need a budget, 2024
4. S. Bureau of Labor Statistics, 1974 – 2024: Celebrating 50 Years of Protected Retirement Plans, March 2024

640357