We Are 65 With $1.9 Million in a 401(k) and IRA, and $5,200 Monthly From Social Security. What’s Our Retirement Budget?

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.

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

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.

Tax rates, deductions, Social Security and portfolio withdrawals all impact the tax plans of retirees. Use our income tax calculator to how your streams of income and deductions may shape your tax picture.

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.

Speak with a financial advisor about retirement planning today.

Tax Considerations

Since you don’t have a Roth IRA, you’ll owe income taxes in retirement on both your portfolio withdrawals and Social Security benefits.

Since your “combined income” is more than $34,000, you’ll owe taxes on 85% of your Social Security income. This means that $53,040 of your Social Security benefits will be taxable, along with $76,000 in portfolio distributions. As a result, you’ll have $129,040 in taxable income before applying any deductions.

Under 2026 tax rules (which will undoubtedly change in future years), married couples filing jointly can take a combined standard deduction of $32,200. Also, the IRS provides an additional standard deduction of $1,650 per spouse who is 65 or older. Since you’re both 65, this would increase your standard deduction to $35,500.

But that’s not where your deductions end. Between tax years 2025 and 2028, the government is offering a temporary $6,000 bonus deduction for seniors. That means you and your spouse could deduct an additional $12,000 (this deduction begins to phase out when modified adjusted gross income reaches $150,000).

These three deductions would hypothetically reduce your taxable income by $47,500, meaning you’ll pay taxes on just $81,540. Using the 2026 tax brackets, that puts you in the second-lowest marginal tax bracket (12%), which means your income tax bill for the year would come out to approximately $9,289.

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 Genworth Financial Cost of Care Survey found that annual costs for a semi-private room in a skilled nursing facility could be as high as $114,972 per year, ¹ and that will likely continue moving up every year. This is nearly all 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 cheap, 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 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.

Photo credit: ©iStock.com/AlexanderFord, ©iStock.com/adamkaz