Financial Planning Tips Can Help Older Workers Budget for Retirement

Retirement is no longer a final milestone; it’s a new beginning. Yet, too often, pre-retirees and retirees approach this phase without a clear financial plan in place. They’ve spent decades saving for “someday,” only to reach that day, unsure how to turn their nest egg into a sustainable lifestyle. The key to a successful retirement isn’t just about how much pre-retirees and retirees saved; it’s about how they plan to use it.

Three key elements require attention:

Differentiating between essential and discretionary expenses;
Safeguarding retirees’ plan against inflation; and,
Aligning their lifestyle goals with their retirement budget.

Today, digital technology — including banking apps and tools powered by artificial intelligence (AI) — is changing not only how individuals plan and manage their spending with accuracy and confidence but also how plan sponsors can help pre-retirees and retirees achieve their retirement goals. This is where you can lend a helping hand; consider ways to communicate the following strategies.

Access an additional Workspan Daily article from this series:

4 Steps to Help Pre-Retirees Consider, Plan for Retirement Income

Forecasting Expenses: Essentials Versus Discretionary

For pre-retirees and retirees, retirement budgeting begins with a straightforward yet practical approach: distinguishing between needs and wants. Basic expenses (e.g., housing, food, healthcare, transportation, utilities, insurance) should form the core of any spending plan. These are non-negotiable. Retirees can align these essential costs with steady income sources such as Social Security, pensions, annuities or regular distributions from retirement savings.

Discretionary expenses such as travel, dining out, hobbies, gifts or technology upgrades reflect personal lifestyle preferences. These enhance retirement but should be adjusted based on market conditions and portfolio performance. Unlike working years, retirees have more control over their time and spending. This flexibility can be a powerful tool for maintaining financial longevity during downturns.

This “two-tier” approach not only clarifies priorities but also offers inherent risk management. During lean years, retirees typically tighten discretionary spending; in prosperous years, they indulge in extras.

Inflation-Proofing the Retirement Budget

While inflation has decreased from its pandemic-era peak, it still poses a persistent threat to retirement security. Even moderate inflation can subtly erode purchasing power. Over the past 20 years, the average annual inflation rate has been 2.52%.

To protect against this, retirement budgeting must account for increasing costs, especially for healthcare, which generally exceeds core inflation. Fidelity estimates an average 65-year-old couple retiring today will require nearly $330,000 (after tax) for healthcare expenses alone during retirement.

So, what can retirees do? First, they can include annual inflation adjustments in spending estimates, assuming a range of 2% to 3%. Second, they can consider diversification of income sources. Social Security offers cost-of-living adjustments, but other income streams may not. They should consider building a retirement investment portfolio that includes assets that are sensitive to inflation.

Finally, they need to reassess periodically. Retirement isn’t static. Reviewing and adjusting spending targets each year may help them ensure inflation doesn’t outpace reality.

Aligning Lifestyle Goals with the Budget

Retirement planning isn’t just about numbers; it’s about living intentionally. Aligning pre-retirees’ and retirees’ budgets with their personal goals is the cornerstone of successful retirement planning.

For some, that means traveling the world; for others, staying close to family, volunteering or pursuing passion projects is most important. These individuals need to start by clearly defining the essential elements of retirement. Where do they want to live? What brings them joy? How much flexibility do they want in their monthly lifestyle?

Then, they need to match those goals to the numbers. A good financial plan quantifies trade-offs: a second home might mean fewer international vacations, while funding a grandchild’s college education could affect the timeline for purchasing a new car. Importantly, retirees who find personal meaning in how they spend, regardless of the amount, tend to report greater satisfaction and less stress.

The Digital Advantage: Budgeting in the Age of AI

Today’s retirees have more control over their budgets than any previous generation. Banking apps, AI tools and automated budgeting platforms make it easier than ever to predict, monitor and adjust expenses in real time.

Many modern banking apps categorize transactions, highlight spending trends, and let users set savings and spending goals. Pre-retirees can use these tools to simulate their retirement spending patterns in advance, gaining a clearer understanding of how their future lifestyle aligns with their expected income. Some apps even allow users to tag “essential” versus “discretionary” spending, providing a digital version of the two-tier budget approach.

Emerging tech is further advancing this field. AI-driven financial planning platforms can analyze past spending, forecast future costs that consider inflation and location, and offer scenario planning for unexpected events, such as healthcare shocks or market downturns. These tools can provide customized guidance and generate dynamic, “living” budgets that adapt as life changes, making them ideal for a retirement that may last 25 to 30 years.

For older adults who are less comfortable with technology, many financial advisors now provide app-based client portals with simple dashboards. As investment accounts, health expenses and budgeting apps become more integrated, retirees can manage their finances in one easy-to-access place, reducing stress and boosting confidence.

The Role of Employers and Policymakers

As the retirement landscape changes, employers and policymakers play a vital role in promoting budgeting literacy among the aging workforce. Workplace retirement education should cover retiree budgeting and spending, as well as provide access to digital budgeting tools that pre-retirees can use to begin planning. Social Security and Medicare education, healthcare savings integration and defined contribution plan income solutions can all support comprehensive pre-retirement planning.

Policymakers can support this by encouraging the development of AI-powered retirement planning tools and ensuring digital tools are accessible to lower-income and less tech-savvy groups.

Final Thoughts

A well-planned retirement budget isn’t about restrictions — it’s about clarity. It helps individuals make thoughtful and confident choices on how to use the wealth they’ve built during their working years. By identifying essentials, preparing for inflation, utilizing digital tools and aligning spending with personal goals, these individuals can transform uncertainty into peace of mind.

Retirement is a phase of life when retirees have control over their time and money. Budgeting wisely, especially with today’s tools and resources, can increase their likelihood that both are spent effectively.

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