We're 65 With $1.5 Million in an IRA and $4,200 Per Month in Social Security. What's Our Retirement Budget?

Age 65 is a major transition for many individuals as they shift to thinking about retirement and begin to contemplate benefits like Social Security and Medicare. Retirement planning means you’ll have to consider taxes, healthcare, your retirement budget and more. With $1.5 million in an IRA and two Social Security payments to rely on, a married couple should have some flexibility for retirement, but their individual circumstances and how they strategize can make a big difference in their quality of life. Here’s how to think about it.

If you need help planning and saving for retirement, consider working with a financial advisor.

Benefits and Savings

If you’re approaching retirement, the first area to examine is your expected savings, income and planned retirement date. Basically, how much money will you have and when? Your income, both from your portfolio and your benefits, will depend heavily on when you choose to retire.

For example, let’s say you’re currently 65, have started collecting Social Security and your IRA is invested in a mixed-asset portfolio with an 8% annual rate of return. If you retire at 67 (full retirement age) and don’t plan to continue contributing to your account, here’s what your finances could look like at retirement:

Age: 67
IRA: $1.75 million
Benefits: $4,200/month ($50,400/year)

This projection assumes an 8% annual return and no withdrawals or additional contributions before age 67. Actual investment returns will vary. Social Security benefits generally receive annual cost-of-living adjustments (COLAs), so the couple’s actual benefit at age 67 could also differ from $4,200 per month. Social Security benefits received a 2.8% COLA for 2026.

If the couple has already started collecting Social Security, waiting until age 70 to retire would not produce the same benefit increase as delaying the initial Social Security claim until 70. Delayed retirement credits apply when a worker postpones claiming benefits beyond full retirement age, up to age 70.

For someone who has not yet claimed, delaying Social Security from full retirement age to age 70 can increase the worker’s retirement benefit through delayed retirement credits. The exact benefit would depend on each spouse’s earnings record, claiming age and future COLAs.

For the purposes of this article, we’ll assume that you retire at 67. The point here is that delaying retirement can help you increase your retirement budget in many cases. And if you need help determining a suitable time to retire, connect with a financial advisor and talk it over.

Spending and Income

A retiree adds up her and her husband's monthly expenses.

Once you know how much income you can expect to generate each year, the next step is to make a budget for it.

“When determining a retirement budget, the goal isn’t just to ensure your money lasts, but to ensure it lasts in a way that maintains your quality of life,” said Aaron Cirksena, CEO and Founder of MDRN Capital. “With $1.5 million in an IRA and a steady stream of Social Security benefits, it’s about balancing the financial priorities with personal priorities. You calculate based on expected needs and foreseeable expenses, but also on the less tangible aspects — like aspirations, goals, dreams and the peace of mind.”

Your income will depend on a variety of factors, including how you invest and manage your money, including your withdrawals. A commonly applied rule of thumb is withdrawing 4% of your portfolio in your first year of retirement and then increasing subsequent withdrawals by the annual rate of inflation. This increases the likelihood that your savings last through retirement.

In this simplistic example, your income in the first year might be:

IRA withdrawals: $70,000
Social Security: $50,400
Combined income: $120,400

The $70,000 IRA withdrawal equals 4% of the projected $1.75 million balance. The $120,400 figure is gross income before federal and state taxes, Medicare premiums and other expenses. It also assumes Social Security remains at $4,200 per month rather than increasing with future COLAs.

For individuals with a lower risk tolerance who might not want to actively manage their money, an annuity might be an option. Alternatively, you can adjust your withdrawal rate up or down depending on your needs and portfolio performance over time.

Keep in mind that a retirement planner can help you calculate how much you can afford to withdraw from savings each year.

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How to Budget Your Retirement

From there, as Cirksena says, it’s about balancing your spending and lifestyle.

For example, how much do you spend each month on housing? How much will you spend on food? How much are your other recurring monthly bills? How much money will you need to allocate for long-term care and Medigap insurance?

And account for the local cost of living, keeping in mind that housing and other costs can rise at different rates depending on where you live.

Then, consider your lifestyle and the discretionary spending that comes with it. What kind of hobbies and habits do you enjoy? For example, do you want to travel in retirement? Do you enjoy eating out or attending live shows? Do you like to buy new clothes?

Combined, this will tell you the spending side of your retirement budget. But if you need guidance as you begin to build your spending plan for retirement, consider connecting with a financial advisor.

Taxes and RMDs

Finally, you will need to plan for taxes and, relatedly, required minimum distributions (RMDs).

You’ll need to pay income taxes on withdrawals from a traditional IRA. Your tax rate will depend on your adjusted gross income (AGI), as it does preretirement. Your AGI will include your IRA withdrawals, some of your Social Security income, as well as income from other taxable sources. With $120,400 in total income between you and your spouse, up to 85% of your Social Security benefits could be included in taxable income. This does not mean the benefits are taxed at an 85% tax rate.

For 2026, married couples filing jointly have a standard deduction of $32,200. The 10% federal income tax bracket applies to taxable income up to $24,800, the 12% bracket applies from $24,801 through $100,800 and the 22% bracket begins above $100,800. The couple’s actual taxable income and federal tax bill would depend on how much of their Social Security is taxable, deductions and any other income.

RMDs will also dictate how much money you’ll eventually need to withdraw from your IRA. A couple who are both age 65 in 2026 would generally have been born in 1960 or 1961. Under current law, people born in 1960 or later generally begin RMDs at age 75, not 73.

For example, if one spouse owned a traditional IRA worth $1.75 million at the end of the year before turning 75, an RMD calculated using the IRS Uniform Lifetime Table’s age-75 divisor of 24.6 would be about $71,138 ($1.75 million ÷ 24.6). The actual RMD would depend on that spouse’s prior-year-end account balance and the applicable IRS life expectancy table. If the $1.5 million is split between two IRAs owned separately by the spouses, each spouse’s RMD would be calculated using that person’s account balance.

One popular retirement tax strategy for people with IRAs is to use a Roth conversion to settle up your taxes with the federal government now rather than in retirement. Converted assets held in a Roth IRA are not subject to lifetime RMDs for the original owner. However, you’ll generally owe ordinary income taxes on pre-tax amounts converted to a Roth IRA. Because this couple is older than 59 ½, the five-year rule for converted amounts generally would not create a 10% early-distribution penalty. A separate five-year rule applies when determining whether Roth IRA earnings can be distributed tax-free.

Bottom Line

A couple who's approaching retirement calculates their RMDs and how much they'll owe in taxes on their retirement income.

Your retirement budget is based on two main factors: your assets and your spending. To create a sustainable budget, you’ll need to make sure those numbers meet in the middle. Start by assessing your assets and determining how much income then can generate. Then, examine your spending needs. If those numbers don’t match, you need to make some changes.

Tips for Managing Your Retirement Budget

A financial advisor can help you build a comprehensive retirement plan. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with 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.
Managing your money in retirement is critical. Ideally, this phase of your life will be almost as long as your working years, so keeping your money invested and growing is generally very important. But you need to balance that with the need to keep your money safe, since you can’t easily go back to work and earn more of it. Here’s how to start thinking about that balance.