In the same way that setting a budget helps you pay your bills, save, and enjoy your earnings, making one for your retirement years will do the same. How much do you think you will spend each year? Will you live the exact same lifestyle that you do now? Or will your expenses be a lot lower?
Aiming for 80% of your pre-retirement income is a realistic goal. So if you currently have $50,000 a year in expenses, your retirement budget should be $40,000 using this benchmark. But if you have your heart set on living a lavish life in retirement, you may need at least 100% of your previous earnings. You can create your own retirement budget that is unique to you by taking an audit of all of your bills you think you'll have in retirement.
After evaluating what your spending in retirement will be, you should figure out how much income you will have. Aside from social security, will you have any guaranteed income sources? How much will come from your retirement assets each month? Most experts agree that maintaining a withdrawal rate of 4% or less can help you avoid outliving your money. This means that if you've saved $500,000 by the first year of your retirement, you would only withdraw $20,000 and adjust each subsequent year for any changes in your portfolio value.