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Creating a retirement spending plan is little different from creating the spending plan you probably already have.

Simply put, you'll need to spend less than you take in. Often that will mean making small adjustments throughout your retirement to keep your spending and income roughly in balance.

Ready to get started? »

The bottom line: Don't run out of money while you still have some living to do.

What will retirement cost?

Start by estimating what your retirement will cost.

If you're the kind of person who makes budgets, create a spreadsheet of your expenses today and how you expect them to change in retirement

Otherwise, you can take a back-of-the-envelope approach: Take what you spend today and multiply it by 85% or 90%. Think of that as your first-year retirement budget—essentially how much money you'll need.

There are three common reasons why you might need less in retirement than you did when you were working:

  • You no longer have to save for retirement. (Yeah!)
  • Work clothes and commuting costs are things of the past.
  • You may have paid off your mortgage.

Of course, if you still have a mortgage, have health issues, or plan to travel the world, your retirement years can cost as much as—or more than—your current lifestyle.

Where will my money come from?

After estimating your retirement costs, the next step is to try to identify where your money will likely come from. Most of us will have several sources of income in retirement. Social Security is often the most important, followed by earnings from part-time work, and then retirement plan savings.

Some types of retirement income are considered regular income, like Social Security and an employer's pension. This means that you are supposed to get regular payments no matter what. This is money that you can count on.

Sources of retirement income

Examples of regular sources

  • Social Security
  • Employer, military, or other pension
  • Income annuity

Variable sources of retirement income don’t promise a benefit. It's up to you to investment money wisely and manage your withdrawals so that your money lasts as long as your retirement.

Examples of variable sources

  • Savings in my employer’s retirement plan
  • Savings in traditional and Roth IRAs (also tax-deferred)
  • Savings and investments in taxable accounts
  • Rental income
  • Work

What should I do next? »

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