When it comes to retirement, you want to look forward to enjoying your free time without worrying about whether you can afford the lifestyle you have planned.
Putting together a retirement budget can help you understand how much money you'll have coming in, what you're likely to spend and whether you'll need to make any adjustments.
In this guide, we'll walk you through how to create a practical retirement budget, including the costs to consider and how to plan for changes along the way.
How to Create a Retirement Budget
Creating a retirement budget doesn't have to be complicated. The easiest way to start is by working out how much money you'll have coming in each month, what you'll need to spend and how much you'll have left over.
Here's how to put one together.
1. Calculate Your Expected Retirement Income
Start by listing all the income you expect to receive once you retire. Depending on your circumstances, this might include:
- State Pension: Check your State Pension forecast to see how much you could receive and when.
- Workplace and private pensions: Review your pension statements to estimate your retirement income.
- Savings and investments: Consider any income or planned withdrawals you'll use to support your retirement.
- Other income: Include rental income, dividends or earnings from part-time work.
Where possible, work out how much you'll receive after tax, as this is the money you'll actually have available to spend.
If you receive income at different intervals, convert everything into monthly figures so it's easier to compare. For example, divide annual income by 12, or multiply a four-weekly payment by 13 and divide by 12 to work out its monthly equivalent.
2. List Your Essential and Discretionary Expenses
Next, work out how much you're likely to spend each month. It helps to separate your expenses into two categories:
- Essential expenses: Costs you need to cover, such as housing, Council Tax, utility bills, groceries, insurance and transport.
- Discretionary expenses: Spending you have more control over, such as holidays, hobbies, entertainment and eating out.
Your current household spending is a useful starting point, but remember that some costs will change when you retire.
For example, you might spend less on commuting and work-related expenses but more on travel, hobbies or activities you haven't previously had time for.
Try to be realistic about the lifestyle you'd like to maintain rather than simply assuming your spending will stay the same.
3. Allow for Irregular and Unexpected Costs
Not every expense comes out of your bank account each month. It's easy to overlook occasional costs such as home repairs, car maintenance, annual insurance renewals, Christmas and birthdays.
One way to account for these is to estimate how much you spend on them each year and divide the total by 12.
For example, if you expect to spend £1,200 a year on irregular expenses, setting aside £100 a month in your budget would help you prepare for them.
It's also sensible to keep some savings available for unexpected expenses, such as replacing a broken appliance or dealing with an urgent repair, so they don't immediately disrupt your regular spending.
4. Compare Your Income and Expenses
Once you've worked out your expected income and spending, you can bring everything together into a monthly retirement budget.
Here's a simple example of what that might look like:
| Monthly Retirement Budget | Amount |
| Total monthly income (after tax) | £2,400 |
| Essential expenses | £1,350 |
| Discretionary spending | £600 |
| Allowance for irregular expenses | £250 |
| Money remaining each month | £200 |
These figures are illustrative. Your own budget will depend on your income, circumstances and lifestyle.
In this example, the retiree has £200 remaining each month after accounting for their expected spending.
If you'd prefer to work through your own figures using an online tool, MoneyHelper also has a free Budget Planner.
How Much Should You Budget for Retirement?
How much you'll need in retirement depends on the lifestyle you want to enjoy. Some people may be happy with a quieter retirement, while others might want to travel regularly, take up new hobbies or spend more time socialising.
To give you a starting point, Pensions UK's Retirement Living Standards provide estimates of how much a single person or couple might spend each year in retirement.
The latest figures, updated in June 2026, are:
| Retirement Lifestyle | One Person (Per Year) | Two People (Per Year) |
| Minimum – Covers essential needs, with some money left for leisure | £13,900 | £22,500 |
| Moderate – Allows more flexibility for holidays, hobbies and everyday spending | £32,700 | £45,400 |
| Comfortable – Provides more freedom for travel, leisure and other extras | £45,400 | £62,700 |
These figures are estimates of annual spending, rather than the income you'd need before tax. They also assume you won't have rent or mortgage payments, so you'll need to add these costs if they apply to you.
They're also guidelines rather than fixed targets. Your own retirement budget will depend on where you live, your household expenses, health, interests and the lifestyle you'd like to maintain.
The most useful approach is to start with your own expected costs and use these benchmarks as a guide to see how your plans compare.
How to Account for Inflation and Changing Expenses
Your retirement budget won't necessarily stay the same from one year to the next. As prices rise and your circumstances change, the amount you need to cover your everyday expenses may increase.
Inflation is particularly important to consider. Even if your spending habits stay the same, essentials such as groceries, energy bills and transport could cost considerably more in ten or twenty years than they do today.
Your lifestyle may also change throughout retirement. You might spend more on holidays and hobbies in the early years, while later on, you may need to account for additional healthcare expenses or the potential cost of long-term care.
When planning your budget, it's worth considering how you'd manage these changes, particularly if some of your retirement income stays at a fixed amount.
Keeping some savings available for emergencies and reviewing your budget regularly can help you adjust your spending as your needs and circumstances change.
What If Your Retirement Budget Doesn't Balance?
If your expected retirement expenses are higher than your income, it doesn't necessarily mean you need to rethink your retirement plans altogether. It may simply mean making a few adjustments to bring your budget into balance.
Depending on your circumstances, you could:
- Review your discretionary spending: Look at areas where you could reduce costs without sacrificing the things you enjoy most.
- Check you've included all your income: Make sure you've accounted for any pensions, savings or other income you'll have available.
- Consider working a little longer: If you haven't retired yet, delaying retirement or gradually reducing your working hours could give you more time to build up savings.
- Check whether you're entitled to financial support: If you've reached State Pension age and are on a low income, you may qualify for Pension Credit or other help with living costs.
You might also consider using more of your pension savings to cover a shortfall. However, taking additional withdrawals could increase your Income Tax bill and leave less money available later in retirement. It's important to understand these implications before making a decision.
The aim is to find a balance between enjoying your retirement and making your available income and savings last.
How Often Should You Review Your Retirement Budget?
It's a good idea to review your retirement budget at least once a year to make sure it still reflects your income, expenses and lifestyle.
You should also revisit it whenever your circumstances change, for example if:
- Your pension income or other sources of income change.
- Your household bills or regular expenses increase significantly.
- You move house or pay off your mortgage.
- Your health or care needs change.
- You take on new financial commitments or have a change in household circumstances.
When reviewing your budget, compare your actual spending with what you originally planned and update your figures where necessary.
Regular reviews can help you spot potential shortfalls early and make adjustments before they become bigger problems.
Get Help With Retirement Budgeting
If you're unsure whether your retirement income will cover your expenses, Ryans can help you review your finances, understand the tax implications and plan for the years ahead.
Our team provides straightforward, practical advice to help you make informed decisions about your retirement.
Find out more about our retirement planning services or get in touch to discuss your circumstances.