Email FacebookTwitterMenu burgerClose thin

I Have $850,000 in an IRA and Would Receive $2,800 Monthly from Social Security. Can I Retire at 65?

A woman looks out the window of her office as she thinks about her plan for retirement.

For many retirees, prudent withdrawals from a wisely invested portfolio combined with Social Security benefits can provide a consistent income to support their spending needs. But what if you had $850,000 in an IRA and $2,800 in monthly Social Security benefits: would that be enough to retire at 65?

To answer this question, you’d have to closely examine your income plan and expenses in retirement. You could use some shorthand methods to estimate your income and post-retirement expenses, but a better way is to create a detailed budget and income projection. Only then can you confidently decide whether you can retire at 65. If you want more insight into how much income your nest egg can generate in retirement, consider talking it over with a financial advisor.

Calculating Your Income

A man check his IRA balance on a laptop in his kitchen.

A $2,800 monthly Social Security benefit is a solid financial foundation to fund your retirement. This benefit is as reliable as anything in the financial universe and adjusts annually to keep pace with inflation.

After that, things become less certain because the amount of income you can expect your IRA to generate each year depends on a number of assumptions. One popular approach assumes you can safely withdraw 4% from a balanced portfolio (50% stock, 50% bonds) in your first year of retirement – adjusting subsequent withdrawals for inflation – and reasonably expect your money to last 30 years or more. That suggests you can take $34,000 from your IRA in your first year. If inflation that year comes to 2%, the next year you would withdraw $34,680 and so on.

A more detailed look at income possibilities might consider how much you could earn from various assets. You could keep it in cash, which might earn 5% or $42,500 per year at current rates for certificates of deposit. That’s without touching the principal. Rates fluctuate, however, so you might opt for long-term fixed-income securities, instead. Ten-year U.S. Treasury Notes currently pay interest semi-annually at 4% per year, which would generate the same $36,400 in annual income that the 4% withdrawal rate would – again without touching the principal.

Stocks offer another option. The S&P 500 Index has historically returned nearly 10% a year. You can’t expect your $850,000 IRA to reliably yield $85,000 each year, however. That’s due to the effect of fees, volatility and other influences that tend to lower actual long-term returns below the average. However, investing a majority of your portfolio in stocks could allow you to withdraw more than the 4% per year.

Annuities could also help you out. These are contracts with insurance companies that guarantee you a set monthly payment for as long as you live in exchange for, usually, a single lump-sum payment. Annuities are complex, come in many varieties and typically have high fees, but they are reliable. For example, a fixed income annuity from New York Life currently pays nearly 7%.

These income options could potentially produce between $34,000 and $85,000 a year in addition to the $33,600 that you’d collect from Social Security. All in, your income could potentially range from approximately $68,000 to $119,000, although the top end is reliant on your portfolio generating an average annual return of 10%, which may not be realistic going forward.

A financial advisor can help you calculate how much income you may need in retirement and how much you can expect your assets to generate.

Calculating Your Expenses

A woman reviews her projected expenses in retirement to determine whether she can afford to retire at age 65.

Whether that income range will be enough in retirement depends on how much you plan to spend. Of course, your expenses can also vary dramatically based on your lifestyle, whether you live in a high-cost area, how much you want to travel in retirement and other factors.

According to the Bureau of Labor Statistics, the average income of people between 65 and 74 years old in 2022 was just over $68,000, while those in the same age group spent almost $61,000 per year, on average.

An analysis of people ages 50 to 65 years old conducted by Fidelity found that most retirees end up spending between 55% and 80% of their pre-retirement income in retirement. So, if you were earning near the national average for someone in this age group, you would likely aim to replace between $37,400 and $54,400 with your various sources of retirement income.

If you earned considerably more before retirement – say $150,000 per year – you would look to replace between $82,500 and $120,000 in order to maintain your current standard of living.

T. Rowe Price, on the other hand, suggests aiming to replace 75% of your pre-retirement income and then adjusting that replacement rate based on how much you saved during your career and how much you can cut expenses in retirement.

Of course, many people are not average. A more individualized way to estimate your post-retirement expenses is to prepare a detailed post-retirement budget. The biggest expense for most retirees is housing. Other major expenses to add include food, taxes and medical care.

Like income, expenses can vary. You might want to spend closer to 90% of your pre-retirement salary, for instance. Or, if you are invested heavily in stocks, you might want or have to reduce your expenses if a bear market reduces your returns. If that happens, consider that housing is also the most variable expense. You can potentially save a lot by downsizing or relocating to a less costly area. And if you’re unsure how to approach income planning in retirement, you may want to talk it through with a financial advisor.

Bottom Line

Income and expense are the two sides of the retirement equation. A $850,000 IRA and $2,800 monthly Social Security benefit could potentially produce enough income to cover a typical retiree’s living expenses without taking on a high degree of risk. Depending on your investment choices, your income could vary significantly. The same can be said about retirement expense depending on your lifestyle, where you live and other factors. To best guide your retirement decision, carefully evaluating your appetite for risk and your ability to be flexible about expenses.

Retirement Planning Tips

  • A financial advisor can help you plan and safe for your golden years. 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 also run the numbers yourself. Plug in your financial details into SmartAsset’s Retirement Calculator to get a free, customized projection of how much you may need to retire and how much you could end up with.

Photo credit: ©, ©, © Trade