Not sure how your spending in retirement will compare to your income? Let’s work through making a budget step by step, using an interactive worksheet you can take to your financial professional.
5 min read | March 03, 2024
There’s a lot to consider when it comes to budgeting in retirement. But for the most part, it’s a matter of estimating how the money you’ll be spending compares to the money you’ll have coming in (your “retirement income”).
Start building your retirement budget with our interactive worksheet.
Building the best retirement budget for you means crunching some numbers. But don’t worry—our retirement budget worksheet (PDF) can help you stay organized in a simple two-page document.
To fill it out, you’ll need access to your financial statements:
Got it? Then you’re ready to start budgeting. We’ll try to make it as straightforward as possible.
Log in to principal.com to access your account information and—if you choose—aggregate all your assets for easier budgeting. First time logging in? Get started here.
Some spending is essential: like paying for housing, food, and health care. But your retirement budget should also include more discretionary spending.
Generally, a budget includes about 50% needs, 30% wants, and 20% goals. Depending on your circumstances in retirement, some of that weight may shift from goals to wants or needs.
There are two options for informing your estimate.
For most people, retirement expenses equal at least 80% of their pre-retirement income.
If that seems about right—thinking critically about your current income as it compares to your monthly spending and your plans for the future—this simple calculation can offer a quick estimate of retirement expenses.
Alternatively, review your current spending habits—item by item—and make projections for what you’ll spend and invest in during retirement.
For most people, covering the above expenses means drawing from various accounts. Some may give you a set amount that’s guaranteed to last a lifetime (“guaranteed income sources”). Others fluctuate with the financial markets and/or spend down as you make withdrawals (“variable income sources”). For these, you’ll need to make some assumptions when budgeting, like how long you may live in retirement.
Subtracting your total expenses from your total income will give you a bottom line. Whether you like that figure on the first pass or have some room to grow, it’s important to evaluate how adjustments could help you manage expenses or boost your income.
Log in to principal.com for additional tools that may make the process easier. Also consider working with a financial professional for personalized recommendations.
If you have a retirement account with Principal ® , use the Retirement Wellness Planner to build a holistic view of your savings and to calculate your estimated monthly income in retirement.
Diversity and balance in your retirement savings—from guaranteed sources of income to those with growth potential—is key. Annuities may offer a tax-advantaged source for your post-work years.
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As a base assumption, we initially assume an 80% replacement ratio based on our industry experience and GAO Retirement Security report to Congressional requestors. The estimated average total spending for post-retirement households was about 77% of the spending levels for pre-retirement households. GAO 2013 CE data; 16-242, Retirement Replacement Rates.
Your Retirement Wellness Score indicates the percentage of your pre-retirement income that is estimated to be available at the specified retirement age (based on your personalized inputs and current assumptions). Studies suggest replacing at least 70-85% of your income in retirement.
The score compares what you are estimated to have in monthly income at retirement against your estimated monthly pre-retirement income. For example, based on your inputs you may have $1,000 per month when you retire, but your monthly pre-retirement income is $2,000. Your Retirement Wellness Score would be 50.
The amounts you will have may differ based on your specific goals in retirement. This score, and what you will have, are merely estimates based on information provided by you, your employer (if applicable) or from our records, and includes account or benefit amounts, recurring employee and employer contributors (if applicable), several financial assumptions and a 4.5% withdrawal rate. The withdrawal rate can vary depending on your Desired Retirement Age. This information may be valued as of different dates. This is not a guarantee of future income.
Your Retirement Wellness Score always assumes you are replacing 100% of your pre-retirement income. So, it will not change if you make changes that impact your desired income in retirement.
The subject matter in this communication is educational only and provided with the understanding that Principal ® is not rendering legal, accounting, investment advice or tax advice. You should consult with appropriate counsel or other professionals on all matters pertaining to legal, tax, investment or accounting obligations and requirements.
The Retirement Wellness Planner information and Retirement Wellness Score are limited only to the inputs and other financial assumptions and is not intended to be a financial plan or investment advice from any company of the Principal Financial Group ® or plan sponsor. This calculator only provides education which may be helpful in making personal financial decisions. Responsibility for those decisions is assumed by the participant, not the plan sponsor and not by any member of Principal ® . Individual results will vary. Participants should regularly review their savings progress and post-retirement needs.
