Planning for retirement these days requires effort to ensure that your household spending doesn’t eat through your savings too fast. If you don’t have a pension — and most retirees these days don’t — you will be relying on the savings you have in 401(k)s and IRAs. It’s on you to figure out a sustainable strategy for withdrawals so your investment portfolio will keep churning out the income you need for at least 30 years. 

Yep, 30 years. A 65-year old woman today has a 50 percent probability of still being alive at 88. For men, there’s a 50 percent chance you’ll still be alive at 85. 

Here’s how to work through a budget:

Income

As a retiree, you will likely have multiple sources of income. How much monthly income each source generates comes down to your choices.

Step 1: Estimate your Social Security benefit.

You can start to collect your retirement benefit as early as age 62 or as late as age 70. Patience will pay off. The benefit you get at age 70 is 76 percent higher than what you’re entitled to at age 62. Unless you have a medical reason to expect your life expectancy may be below-average, retirement planning pros recommend waiting until age 70. At the Social Security website, you can get an estimate of your benefit at various claiming ages.

Step 2: Estimate your annual income from your retirement accounts.

Your 401(k) provider or the firm where you have your IRAs often have free online tools to help you estimate a “safe” withdrawal rate from your accounts. Safe means you aren’t withdrawing so much that you put yourself at risk of running out of money. 

These calculators are only as good as the assumptions you use. To err on the side of safety, you may want to override presets and choose a life expectancy to age 95, and a lower rate of return for your portfolio than the historic averages that the tools typically use.

There are in fact many ways to approach generating retirement income and ways to create guaranteed income (hint: immediate annuities). This is where consulting with a reputable financial planner can be a great investment to get help in figuring out your retirement income strategy.

Step 3: Add the estimates from Step 1 and Step 2. And if you do have a pension, add it here too. 

Your calculations should look like this:

Spending

Needs vs. Wants: Retirement edition

If you’re at this point, this is not your first rodeo in figuring out household cash-flow, but there are some important spending changes in retirement that warrant a careful fresh look at your monthly retirement expenses. This worksheet can help you think through the expenses you’ll come across.

There are indeed some expenses that should vanish. For example, you can scratch retirement savings from your expenses. Done with that! Commuting costs might also be significant amount of savings. If you had to look the part at work, you might even see your dry cleaning costs take a nosedive.

But there are new costs to consider. Medicare will cover about 70 percent of your healthcare costs; you are responsible for the rest. Your costs depend on your income (Medicare premiums are income-based), your general health, where you live and the cost of any supplemental insurance you decide to purchase. (This calculator can help you determine how much you might spend on healthcare.) Remember, long-term care costs are not covered by Medicare. If you want to plan for that, you’ll need to carve out more of your savings for that expense.

While some expenses are more pared-down, you may have new costs to consider – such as healthcare expenses. Medicare will cover about 70 percent of your healthcare costs, but you are entirely responsible for the rest. Your costs are dependent on how much income you have during retirement, your general health, where you lie and the cost of any supplemental insurance you decide to purchase (Medicare doesn’t cover everything!). This calculator by NerdWallet can help you calculate how much you will spend on healthcare. 

Be sure to factor in the cost of taxes you will pay once you start making required minimum distributions (RMDs) from traditional 401(k) and IRA accounts. Every dollar is taxed as income.

Once you have your spending laid out, divide expenses into two buckets: needs and wants. 

Ideally your income will be enough to cover your fixed costs and hopefully plenty of wants too. If you’re coming up short, consider where you can trim your budget. Less expensive housing can really help minimize the amount of budget that goes into “needs”.

If you have enough budget for plenty of wants, that’s great! Just keep in mind that one of your most valuable financial assets in retirement will be your flexibility. In years where your investment portfolio loses value, or if you have a big unexpected expense —a new roof, an illness that increases your out-of-pocket expense— scaling back, or delaying a “want” expense, such as a vacation, can help keep your budget in line.