Budgeting for Retirement Back »

Written by Liz Word under the direction and review of Lorna Saboe-Wounded Head.

A common misconception with retirement is that you do not have to start thinking about it until you get older. This could not be further from the truth, as the sooner you start thinking and planning for retirement, the better off you will be.

Contemporary Reality of Retirement

  • Americans aren’t saving enough. Our personal savings rate in the United States today is about 3% of our disposable personal income.
  • Baby Boomers have started to retire, further straining the Social Security system.
  • Most experts agree that an individual will need between 70 and 100% of his or her preretirement income to retire comfortably.
  • Social Security currently pays average 65-year-olds between 25% - 40% of what they will actually need to maintain their preretirement lifestyle.
  • People are living longer and in turn paying more for health care expenses.
  • People may outlive their savings.
  • Consider inflation.


Over time the prices of goods and services rise and inflation gradually affects the purchasing power of an individual’s income. What we can do now to avoid the negative effects of inflation:

  • Cut back on spending.
  • Reduce debt.
  • Increase savings.
  • Hold some portion of saving in equity (stock) investments for your second or third decade of retirement living expenses.

Health Care

Although inflation is something that one need to consider, health care expenses tend to rise faster than inflation. People living longer has a direct correlation to an increase in health related expenses. So, medical expenses will likely become a larger percentage of the contemporary retiree’s budget. What you can do now to position yourself for a comfortable retirement:

  • Take full advantage of preventive care programs.
  • Try generic drugs because they usually cost significantly less than brand-name drugs.
  • Be mindful of free or low-cost health clinics offered specifically for retirees; these clinics may provide flu shots, hearing tests, and other services at little or no cost.
  • Designate a portion of income every year for future health care expenses.


People are living longer and while this is a good thing, longevity affects every realm of an individual’s lifestyle. Longevity risk is the possibility that you will outlive your savings. Depending on your situation as you prepare to retire, consider the following:

  • Delay claiming Social Security benefits as long as possible.
  • Purchase some type of guaranteed-income-for-life insurance product, such as an immediate fixed annuity when in your late 60s.
  • Purchase longevity insurance—this is a delayed annuity designed to start payment when you reach your mid-80s.
  • Invest in high-quality stocks that have a strong history of paying dividends. Financial advisors suggest an investment combination of 60% stocks and 40% bonds when preparing for retirement.

Visit My Retirement Paycheck for more information on retirement.

Check out this short video for 5 steps to making sure you’re ready to retire.

Steps to Successful Retirement Planning

  • Ask yourself what you are going to do in retirement?
    • If travel is something on your list it is something that you will need to allow for in your budget.
  • Identify and set preretirement and postretirement goals.
  • Estimate the length of your retirement.
  • Determine your net worth.
  • Estimate your retirement expenses.
  • Estimate your retirement income.
  • Balance expenses and income.

You will feel a sense of control over the retirement process if you start planning now!

Reference: Money Talk (2018) by Brennan and O’Neill. Plant and Life Sciences Publishing, Ithaca, NY.

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