Ask a Consultant: We're 65, have $1 million saved and $42,000 in Social Security benefits.  Can we live on $90,000 a year?

Ask a Consultant: We’re 65, have $1 million saved and $42,000 in Social Security benefits. Can we live on $90,000 a year?

My wife and I are 65 years old. You will retire this year and I will work until I am 67. We’ll have about $42,000 in Social Security and have about $1 million in savings. Can we live on $90,000 a year?

-Terry

$90,000 a year would pay the high end of what I would be comfortable with as a general rule. However, whether it will work for you is a very individual matter. I’m going to give you an overview of some of the things you’ll want to consider before you decide if you’re comfortable spending $90,000 a year. (And if you need more retirement planning help, consider working with A financial consultant.)

Does your expense number include taxes?

Will the $90,000 you expect to spend each year cover your annual tax bill or is this the amount you plan to spend after taxes? The answer to this question is vital. If it’s the latter, you’ll need to withdraw more of your savings each year, further emphasizing the longevity of your portfolio.

Whether your savings are held in a tax-deferred account, a Roth account, or a taxable account. I assume your money is mostly tax-deferred, which means it’s held in 401(k)s and IRAs. You will have to calculate the income taxes you will owe when you start withdrawing that money. If a significant portion of your assets are in Roth accounts, your distributions are tax deductible, which is simply the process. (And if you want even more help managing your retirement savings, consider matching with a financial consultant.)

What is your investment plan and risk tolerance?

Ask a Consultant: We're 65, have $1 million saved and Social Security benefits.  Can we live on $90,000 a year?

Ask a Consultant: We’re 65, have $1 million saved and Social Security benefits. Can we live on $90,000 a year?

You need to invest according to your own risk tolerance. But if your portfolio is too conservative or aggressive, it will put extra pressure on your savings.

  • If you and your spouse are particularly conservative, this will likely hinder your ability to keep up with this level of spending over time.

  • If you’re too aggressive, you could expose yourself to a lot of volatility, which can also wreck a retiree’s portfolio once withdrawals begin.

the Portfolio 60/40 Historically, it has been very popular with retirees because it leaves them with enough equity to take advantage of the long-term growth often required for a long-term retirement without a lot of volatility. This isn’t for everyone, but the point is that if your entire balance is in CDs, for example, your money probably isn’t growing fast enough. The opposite is true for a 100% stock portfolio. It’s very volatile and a bad year or two in the market, especially early on, can be disastrous. (a financial consultant It can help you find the right mix of stocks, bonds, and other investments for your risk tolerance.)

What is your withdrawal rate?

Ask a Consultant: We're 65, have $1 million saved and Social Security benefits.  Can we live on $90,000 a year?

Ask a Consultant: We’re 65, have $1 million saved and Social Security benefits. Can we live on $90,000 a year?

A lot of retirement income planning is focused on withdrawal rate. The classic “rule of thumb” is if you quit 4% of your savings In the first year of retirement and post-inflation-adjusted withdrawals, you can be reasonably sure that your money will last for 30 years. I use this term loosely. It is not an hard rule but a guideline for understanding safe withdrawal rates in a historical context. Most people have to modify it in some way. You may not need or want to plan your finances to last 30 years, for example.

Again, depending on what those $90,000 in expenses include, I think you could easily be looking at a drawdown rate close to 5% and maybe even higher. This is not necessarily a show stopper. However, you’ll need to take some time to understand how your withdrawal rate plays a role in your ability to maintain your spending without depleting your savings too quickly. (And if you need help determining an appropriate withdrawal rate, This tool can help you match with a financial advisor.)

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Whether your savings and Social Security benefits can cover $90,000 in annual expenses depends on a number of factors. You’ll want to consider whether you need $90,000 before or after taxes and think about your investment mix and risk tolerance. You’ll also need to know what type of withdrawal rate you’ll need to support your spending needs in retirement.

Tips for finding a financial advisor

  • Finding financial consultant It doesn’t have to be difficult. Free SmartAsset tool It matches you with up to three vetted financial advisors serving your area, and you can interview your own advisors at no cost to determine which one is right for you. If you are ready to find a counselor who can help you achieve your financial goals, let’s start.

  • Consider a few advisors before settling on one. It is important to make sure you find someone you trust to manage your money. When you consider your options, These are the questions you should be asking Counselor to make sure you make the right decision.

Brandon Renfro, CFP®, is a SmartAsset financial planning columnist and answers readers’ questions about personal finance and tax topics. Do you have a question you would like answered? Email AskAnAdvisor@smartasset.com and your question may be answered in a future column.

Please note that Brandon is not a participant in the SmartAdvisor Match platform and has been compensated for this article.

Photo credit: © iStock.com/William_Potter, © iStock.com/Cecilie_Arcurs

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