To really build a complete retirement budget as a couple, you’ll need to take into account both potential income sources and realistic expenses. While it’s possible to come up with an estimated income or range of incomes from these figures, the expense side of the budget is equally important and potentially much more variable. 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-foresee expenses, such as healthcare and long-term care costs.

Determining Your Anticipated Income

Since 65 is within the normal range of retirement ages, you may well plan to retire immediately. If so, you’ll have to generate your 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 might grow somewhat and allow you to increase your retirement income.

More specifically, if you wait until full retirement age at 67, your Social Security benefit will also increase. However, right now, a nest egg of this size and the Social Security benefit described could generate a solid retirement income.

The 4% rule is a historic rule of thumb you can use to start thinking about how much you can safely withdraw from your retirement investments each year. It employs a conservative strategy in some markets, or overly aggressive in others, so there’s risks to following this rule on both sides. However, the same can be said for any path you might choose.

Applying this rule suggests you could withdraw 4% of your $1.9 million the first year and a similar amount, adjusted for inflation, each year thereafter for 25 years, though that doesn’t account for any potential earnings. In this limited example, that means you’d withdraw $76,000 the first year. Then if inflation is 3% the next year, your withdrawal would increase by that same amount up to $78,280.

On an annual basis, your combined Social Security benefits come to $62,400, at $5,200 a month. Combined with $76,000 from investments, your total income would equal $138,400 in year one. Depending on the lifestyle you want to maintain as a retiree, this should give you quite a bit of flexibility as a couple.

What Your Anticipated Spending Might Look Like

For many retirees, $138,400 annually is adequate income for a comfortable lifestyle. In the absence of any details on spending habits, another rule of thumb can be applied. Multiplying pre-retirement income by a percentage is one way to come up with a likely post-retirement income need. This percentage can range from 70% to 90% or higher, depending on the retiree.

In this case, let’s assume 80% would be accurate for you and your spouse. If so, $138,400 would be sufficient to maintain your pre-retirement lifestyle if you were earning approximately $172,000 combined per year prior to retiring. If you’re used to living on more than that, you might have to cut back in retirement.

Tax Considerations

Since you don’t have a Roth IRA, you’ll owe income taxes in retirement. Under 2024 tax rules (which will undoubtedly change in future years), you could use the married, filing jointly standard deduction of $32,200 available to married couples when both spouses are 65 or older. This would reduce your taxable income to $106,200.

Since your taxable income is more than $34,000, you’ll owe taxes on 85% of your Social Security income. This means just 15%, or $9,360, of your Social Security income won’t be taxable. So now your taxable income is $96,840 after all 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 bill will be approximately $11,715 the first year.

How RMDs Come Into Play

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

RMD income is taxable, so this income could have tax implications. However, the $71,698 amount of the RMD is less than the amount you’ll withdraw the first year of your retirement. So RMDs are unlikely to have much effect on your tax bill as a retiree, unless circumstances in one way or another.

Accounting for Long-Term Care

Your retirement plan may want to also consider long-term care. A 2021 Genworth Financial Cost of Care Survey uncovered that annual costs for a semi-private room in a skilled nursing facility could be as high as $94,000 per year, and that will likely continue moving up every year. This is more than two-thirds of your entire first-year anticipated income, so a long stay in one of these could be a significant financial concern.

To insulate yourself from these potential costs, you might consider long-term care insurance. Be aware that the premiums are not inexpensive, especially if you start later in life. Prices rise sharply as you age and it may be difficult to get it if you are past age 70 or in poor health.

Retirement Planning Tips

  • A financial advisor can help you build a comprehensive plan for retirement. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • You can use SmartAsset’s retirement calculator to generate what-if scenarios that can help you decide whether it’s safe for you to retire.

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