Whether you’re already retired or prepping, this guide will assist in financial preparation for retirement to help support your lifestyle and help ensure peace of mind.
Step 1: Estimate Your Retirement Income
A new AARP Financial Security Trends survey found that more than half of Americans are worried they will not have enough money to support them in retirement.1 Identifying all potential sources of income will help you estimate how much you will spend in retirement and whether your savings will sustain your lifestyle. Common retirement income sources include:
- Social Security retirement benefits (In June 2025, the average monthly Social Security check for retired workers was $2,005.052)
- Pensions or annuities
- Withdrawals from retirement accounts (e.g., 401(k), IRA)
- Investment income
- Part-time work or side gigs
Once you’ve compiled a list of your income sources, use tools like our retirement calculator to help project your future income needs.
Step 2: List Your Potential Expenses
Understanding the cost of living in retirement is key to creating a budget that works for you. Begin by outlining your monthly and annual expenses, dividing them into essential and non-essential categories. Typical list of retirement expenses includes:
- Housing: Mortgage, rent, property taxes, insurance, and maintenance
- Utilities: Electricity, water, gas, internet, and other household services
- Food and household supplies: Groceries and everyday essentials
- Transportation: Car payments, gas, insurance, and maintenance
- Healthcare: Insurance premiums, prescriptions, co-pays, and other medical costs
- Taxes: Federal, State, Local and other taxes
- Debt repayments: Any outstanding loans or credit card payments
Even if you’ve paid off your mortgage, ongoing expenses like property taxes, home maintenance, and insurance will need to remain part of your budget if you choose to keep your home. These are important components to consider when planning for your average monthly retirement spending.
Step 3: Add Discretionary Spending
So, how much do you spend in retirement? Include discretionary spending in your budget to help ensure you can maintain your ideal lifestyle. Some common areas of annual spending in retirement include:
- Dining out: Exploring new restaurants or enjoying meals with friends
- Travel and vacations: Visiting family, exploring new destinations, or taking dream trips
- Hobbies and entertainment: Pursuing passions, joining clubs, or enjoying leisure activities
- Gifts and charitable giving: Supporting loved ones or causes close to your heart
Being honest about your vision for retirement and the associated retirement cost of living allows you to create a budget that supports your goals while maintaining financial security.
Step 4: Account for Unexpected Costs
Life is unpredictable, and unexpected expenses don’t disappear in retirement. According to a study from EBRI, 36% of retirees say they have experienced an unexpected spending need since their retirement.3 Common unexpected expenses include:
- Emergency home or car repairs
- Helping family members financially
- Long-term care or higher medical costs
- Market downturns affecting investment income
Maintaining a cash reserve or emergency fund as part of your retirement expenses planning might be a good option for you. This financial cushion can help you navigate emergencies without jeopardizing your savings.
Step 5: Monitor and Adjust as Needed
Creating a retirement budget isn’t a one-time task, it’s an ongoing process. Life changes, markets fluctuate, and your spending habits may evolve over time. Regularly reviewing and adjusting your budget is essential to staying on track.
Consider using online tools to help you plan your income and expenses now and through retirement.
The Bottom Line
A well-planned retirement budget may help give you clarity, control, and confidence as you navigate this exciting phase of life. By tracking your income, managing your cost of retirement, and preparing for the unexpected, you can help reduce your overall financial stress and focus on making the most of your golden years.
This blog is up to date as of February 2026 and has not been updated for changes in the law, administration, or current events. American Fidelity does not provide financial, legal, or tax advice. Consult an attorney or a tax professional regarding your specific situation.
