For many Americans preparing for retirement, one of the biggest challenges is understanding what their lifestyle will actually cost. Nearly half of adults over age 55 have never created a retirement budget, a gap that can make it difficult to evaluate how well their income sources and spending expectations align. Although budgeting may not be the most exciting part of retirement planning, it is one of the most essential. A thoughtful plan helps individuals understand how expenses may evolve over time and identify the factors, such as healthcare, taxes, inflation, and longevity, that influence long-term financial sustainability.
Why the “You’ll Spend Less in Retirement” Myth Falls Short
A common assumption is that expenses drop significantly once full-time work ends. While some costs, such as commuting or dry-cleaning, may decline, others often rise. Healthcare, travel, home maintenance, and family support are frequently underestimated and can represent a substantial portion of a retiree’s annual spending.
According to Fidelity Investments’ most recent healthcare cost analysis, a 65-year-old couple retiring in 2024 may need an estimated $315,000 to cover out-of-pocket healthcare expenses throughout retirement. This estimate does not include long-term care, which can be a separate and significant cost. Julie Rich, CFP®, highlights this distinction, underscoring why planning requires a realistic understanding of multiple expense categories.
A Three-Part Framework: Needs, Wants, and Wishes
Organizing expenses into needs, wants, and wishes provides clarity and structure, helping individuals create a budget that reflects both day-to-day realities and long-term aspirations.
- Needs: The Foundations of Daily Life
Needs include recurring, non-discretionary expenses such as:
- Housing (utilities, property taxes, insurance, maintenance)
- Food and groceries
- Transportation
- Healthcare and insurance
- Basic household necessities
Home maintenance is often overlooked. A commonly cited benchmark suggests homeowners may spend 1% to 4% of their home’s value annually on upkeep, meaning a $400,000 home could require up to $16,000 per year.
Healthcare costs extend beyond routine services. The U.S. Department of Health & Human Services estimates that 70% of people turning 65 will need some form of long-term care, and Genworth’s latest survey shows the median annual cost of a private nursing home room exceeds $108,000.
- Wants: The Elements That Enhance Lifestyle
Wants are flexible expenses that bring enjoyment and enrichment, such as:
- Travel
- Hobbies and recreational activities
- Golf or club memberships
- Dining and entertainment
- Helping adult children or grandchildren
According to AARP’s 2025 Travel Trends Report, adults age 50+ expect to spend an average of $6,847 on travel in 2025, demonstrating that travel remains a meaningful priority for many retirees.
- Wishes: The Aspirational Goals
Wishes represent larger, long-term goals that contribute to a fulfilling retirement, including:
- Purchasing a second home
- Extended international travel
- Launching a business or passion project
- Major family experiences
- Charitable or legacy-oriented goals
Planning for these goals early allows retirees to incorporate them appropriately into their broader financial picture.
Taxes, Inflation, and Longevity: Key Variables to Consider
Taxes
Taxes continue in retirement, and their impact varies based on income type. Withdrawals from tax-deferred accounts, taxable investment income, and certain portions of Social Security benefits may be subject to federal income tax. Understanding these rules helps retirees evaluate how income sources work together.
Inflation
Even moderate inflation can affect long-term purchasing power. At a 3% average inflation rate, prices double roughly every 24 years. For retirees who may live 25–30 years in retirement, adjusting for inflation is essential.
Longevity
Longevity risks the possibility of outliving one’s assets. It is a central component of retirement planning. According to the Social Security Administration’s actuarial data, one spouse in a 65-year-old couple has a 50% chance of living to age 90 or beyond.
Evaluating Income Sources
Once expenses are outlined, the next step is comparing them with available income. Common income sources include:
Guaranteed income
- Social Security
- Pension benefits
- Annuities
Variable income
- Interest and dividends
- Withdrawals from retirement accounts and savings
- Part-time work or consulting income
Some individuals use general frameworks, such as the widely referenced 4% withdrawal guideline, to estimate potential withdrawal amounts, while others prefer a personalized plan developed with a financial professional using detailed projections and cash-flow modeling.
A Budget That Evolves With You
A retirement budget is not a static document. Life circumstances, markets, health needs, and personal goals can shift over time. Revisiting and updating your plan can help you stay aligned with your priorities and maintain clarity around how your resources support the lifestyle you envision.
At Moran Wealth Management®, we help individuals and families evaluate how the pieces of their financial picture work together. From income planning and tax considerations to long-term goals and evolving needs. To learn more about how our team approaches retirement planning, we invite you to click here.
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