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truly Build a complete retirement budget As a couple, you will need to take into account potential sources of income and realistic expenses. While it is possible to come up with an estimated income or range of income from these numbers, the expense side of the budget is just as important and may be more volatile. Other variables include your planned retirement date, whether you have any other sources of retirement income and how you want to plan to handle hard-to-predict expenses, such as health care and long-term care costs.
Since age 65 is within the normal range of retirement age, you may plan to retire immediately. If so, you’ll have to generate your investment-based income from the $1.9 million currently in retirement accounts. If you are willing and able to wait a few years, this amount may grow somewhat and allow you to increase your retirement income.
More specifically, if you wait until… Full retirement age At age 67, your Social Security benefits will also increase. However, for now, a nest egg of that size and the prescribed Social Security benefits could generate solid retirement income.
the 4% rule It’s a historical rule of thumb you can use to start thinking about how much you can safely withdraw from your retirement investments each year. It uses a conservative strategy in some markets, or an overly aggressive strategy in others, so there are risks in following this rule on both sides. However, the same can be said about any path you may choose.
Applying this rule means you can withdraw 4% of your $1.9 million in the first year and a similar amount, adjusted for inflation, every year thereafter for 25 years, although this does not account for any potential earnings. In this limited example, that means you would withdraw $76,000 in the first year. Then if inflation hits 3% the following year, your withdrawal will increase by the same amount, up to $78,280.
On an annual basis, your combined Social Security benefits Up to $62,400, at a rate of $5,200 per month. Plus $76,000 in investments, your total income equals $138,400 in the first year. Depending on the lifestyle you want to maintain as a retiree, this should give you a lot of flexibility as a couple.
For many retirees, $138,400 a year is enough income for a comfortable lifestyle. In the absence of any details about spending habits, another rule of thumb can be applied. Multiplying your pre-retirement income by a percentage is one way to come up with a probability Need for income after retirement. This percentage can range from 70% to 90% or more, depending on the retiree.
In this case, let’s assume that 80% would be accurate for you and your spouse. If so, $138,400 would be enough to maintain your pre-retirement lifestyle if you earned approximately $172,000 per year before retirement. If you’re used to living on more than that, you may have to cut back in retirement.
Since you don’t have a Roth IRA, you’ll owe income taxes in retirement. Under the 2024 tax rules (which will undoubtedly change in the coming years), you can be married or filing jointly. Standard discount $32,200 is 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 You owe taxes on 85% of your Social Security income. This means that only 15%, or $9,360, of your Social Security income will not be taxed. So now your taxable income is $96,840 after all deductions.
Using 2024 Tax brackets$96,840 in taxable income puts you, at the highest level, in the 22% bracket. At this income level, your tax bill will be about $11,715 in the first year.
When you turn 73, you will start taking… Required minimum distributions (RMDs) From your retirement accounts. Using the IRS table to calculate these distributions, your RMD in the first year would be $71,698.
RMD income is taxable, so this income may have tax implications. However, the RMD of $71,698 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 circumstances exist one way or another.
Your retirement plan may also want to consider long-term care. The 2021 Genworth Financial Cost of Care Survey reveals this Annual costs for a semi-private room In a skilled nursing facility that can be as high as $94,000 per year, and this will likely continue to rise each year. This represents more than two-thirds of your total expected income in the first year, so an extended stay in one of these cities can be a major financial concern.
To insulate yourself from these potential costs, you might consider this Long-term care insurance. Be aware that premiums aren’t cheap, especially if you start later in life. Prices rise sharply as you age and may be difficult to obtain if you are over 70 or in poor health.
A Financial advisor It can help you build a comprehensive retirement plan. Finding a financial advisor is not difficult. Free SmartAsset tool Matches you with vetted financial advisors serving your area, and you can make a free introductory call with your matched advisors to determine which advisor you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, Start now.
You can use SmartAsset Retirement calculator To create “what-if” scenarios that can help you determine if retirement is safe for you.
Keep an emergency fund on hand in case you encounter unexpected expenses. An emergency fund should be liquid – in an account that is not at risk of significant fluctuations such as the stock market. The trade-off is that the value of liquid cash can be eroded by inflation. But a high-interest account allows you to earn compound interest. Compare savings accounts from these banks.
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