Goal 1: Basic living expenses

What: Food, shelter, transportation, health care premiums and deductibles—the things that keep you alive.

How much: It depends on your lifestyle and where you live. Do you cook low-cost meals or eat out at fancy restaurants? Do you live in a small house in the Midwest or in an oceanside condo?

How to handle: While you have some flexibility in prioritizing these goals, this one will probably be your highest priority.

If your Social Security checks and any other guaranteed income you have (like from a pension) aren’t enough to cover your basic expenses, you may want to think about using some of your savings to buy an annuity that will make up the difference. You want to be sure you’ll have enough money to pay these expenses, no matter what.

Another option to increase your ongoing income is, of course, to keep working part-time.

Goal 2: Contingency reserve

What: Extraordinary health care expenses or long-term care expenses, other unexpected large and necessary expenses (like home repairs)—the money you don’t need until you really, really need it.

How much: A lot of the money in this category is likely to be directed toward health care costs, which can be expensive and unpredictable. One study shows that a retired couple will spend an average of $265,000 on health care throughout their retirement,* but that dollar amount can vary substantially. So consider these questions: How healthy are you? What will your insurance cover? And what level of medical care are you going to want?

As you think about how much you need for this goal, don’t forget the possibility of home and car repairs, helping family members, and other potential unexpected bills.

How to handle: Having the appropriate level of insurance is a great first line of defense—home, life, and health.

You’ll likely also want a pool of liquid assets to pay for large expenses that aren’t covered by insurance. You can take some risk with this money—a mix of stocks and bonds can help you balance safety with moderate growth. And always having a ready amount of cash can help you avoid the potential for selling investments at an inopportune time.

Goal 3: Discretionary expenses

What: The fun stuff, like eating out, traveling, and entertainment! Anything you could choose not to spend money on. (But who would want to do that?)

How much: Again, this completely depends on your lifestyle. If you’re excited to retire and ready to start living the good life, make sure you’re financially prepared for it!

How to handle: If you’re still able and willing to work, this can be a great way to ramp up the amount you can spend on having fun. It doesn’t have to be a full-time job; consider working part-time, consulting, working for yourself, or freelancing.

And if you have savings left over after accounting for the first 2 goals, feel free to use them in whatever way you’d like. Keep in mind that many people spend more money on discretionary expenses early in retirement, and less later on (the opposite of health care expenses).**

Goal 4: Legacy

What: Money you want to leave to heirs or charitable organizations.

How much: Legacies are very personal. Some people plan to leave specific amounts, others leave whatever’s left over (which could be nothing), and some hope to leave a legacy that will keep growing for many generations.

How to handle: If some of your savings are designated as a legacy, consider investing that portion in a more aggressive portfolio so it can keep growing. Many people alternatively plan to leave tangible assets—like their home—as a legacy.

We can do this!

Figuring out how much you’ll need for different expenses in retirement is only one facet of retirement planning. You’ll also need to think about the possible risks that could derail you.

We can help with that too! Read more, check out our research paper, or set up time to speak with a Vanguard advisor.

The 5 major risks you face in retirement

Vanguard’s roadmap to financial security: A framework for decision-making in retirement


*Source: Employee Benefit Research Institute, EBRI Notes, Vol. 38, 2017.

**Source: Government Accountability Office, Retirement Security Report, March 2016.


All investing is subject to risk, including the possible loss of the money you invest.

Advice services are provided by Vanguard Advisers, Inc., a registered investment advisor, or by Vanguard National Trust Company, a federally chartered, limited-purpose trust company.