We Are 65 With $1.9 Million in Savings and $5,200 in Monthly Social Security. What’s Our Retirement Budget?

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To create a comprehensive retirement budget as a couple, you will need to consider both potential sources of income and actual expenses. While you may have come up with an income estimate or income range from these calculations, the expense side of the budget is equally important and can be very volatile. Other variables include your planned retirement date, whether you have other sources of retirement income and how you want to plan for hard-to-see expenses, such as health care and long-term care costs.

To get a full picture of your expenses and income in retirement, consider talking to a financial advisor.

Since 65 is within the normal retirement age range, you may be planning to retire early. If so, you’ll need to generate investment-based income from the $1.9 million you currently have in retirement accounts. If you were willing and able to wait a few years, this amount could grow slightly and allow you to increase your retirement income.

Specifically, if you wait until your full retirement age of 67, your Social Security benefit will also increase. However, in the meantime, a nest egg of this size and a defined Social Security benefit could produce a solid retirement income.

The 4% rule is a landmark rule that you can use to start thinking about how much you can safely withdraw from your pension investments each year. It uses a conservative strategy in some markets, or is overly aggressive in others, so there is a risk of compliance on both sides. However, the same can be said for any method you may choose.

Using this rule suggests that you can withdraw 4 percent of your $1.9 million in the first year and the same amount, adjusted for inflation, each year after that for 25 years, although that doesn’t count any potential income. In this limited example, that means you will withdraw $76,000 in the first year. Then if inflation is 3% next year, your withdrawal will increase by that amount to $78,280.

Annually, your combined Social Security benefits come to $62,400, at $5,200 per month. Combined with the $76,000 from the investment, the total income would equal $138,400 in the first year. Depending on the lifestyle you want to maintain as a retiree, this should give you some flexibility as a couple.

For most retirees, $138,400 a year is enough money to live comfortably. If there is no information on spending habits, another rule of thumb can be used. Multiplying pre-retirement income by a percentage is one way to come up with post-retirement income needs. This percentage can range from 70% to 90% or more, depending on the retiree.

In this case, let’s assume that 80% will be accurate for you and your spouse. In that case, $138,400 would be enough to maintain your pre-retirement lifestyle if you were earning about $172,000 combined in the year before retirement. If you’re used to living more than that, you may need to cut back on your retirement age.

Talk to a financial advisor about retirement planning today.

Since you don’t have a Roth IRA, you will owe taxes in retirement. Under the 2024 tax rules (which will no doubt change in the coming years), you can file for married, joint filings for the $32,200 standard deduction available to married couples when both spouses are 65 or older. This will reduce your taxable income to $106,200.

Since your taxable income is more than $34,000, you will owe taxes on 85% of your Social Security income. This means that only 15%, or $9,360, of your Social Security income will be tax-free. Now your taxable income is $96,840 after all your deductions.

Using the 2024 tax brackets, $96,840 of taxable income puts you, at the highest level, in the 22% bracket. At that income level, your tax liability will be about $11,715 in the first year.

When you turn 73, you’ll start taking required minimum distributions (RMDs) from your retirement accounts. Using the IRS table to calculate this distribution, your RMD for the first year will come to $71,698.

RMD income is taxable, so this income may have tax implications. However, the $71,698 RMD amount is less than the amount you will withdraw in the first year of your retirement. So RMDs are unlikely to have a significant impact on your tax bill as a retiree, unless there are certain circumstances.

Your retirement plan may want to consider long-term care. The 2021 Genworth Financial Cost of Care Survey revealed that the annual cost of a private room in a skilled nursing facility can reach $94,000 per year, and that will likely continue to rise every year. This is more than two-thirds of your total income in the first year, so staying in one of these for a long time can be a big financial problem.

To protect yourself from these potential costs, you might consider long-term care insurance. Note that premiums are not expensive, especially if you start later in life. Prices go up as you get older and it can be difficult to get if you’re over 70 or in poor health.

• A financial advisor can help you create a comprehensive retirement plan. Finding a financial advisor doesn’t have to be difficult. SmartAsset’s free tool matches you with vetted financial advisors serving your area, and you can have a free introductory call with your advisor to decide which one you feel is right for you. If you’re ready to find an advisor to help you reach your financial goals, get started now.

• You can use SmartAsset’s retirement calculator to create scenarios to help you decide if it’s safe for you to retire.

• Keep an emergency fund on hand in case you run into an unexpected expense. An emergency fund should be liquid — in an account that isn’t exposed to significant fluctuations like the stock market. The tradeoff is that the value of cash can erode due to inflation. But a high interest account allows you to earn compound interest. Compare savings accounts from these banks.

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The post We Are 65 With $1.9 Million in 401(k) and IRA, and $5,200 Monthly From Social Security. What’s Our Retirement Budget? appeared first on SmartReads by SmartAsset.