Is $1 million and $30,000 in Social Security enough for a $70,000 annual budget at age 65?

Let’s say you and your spouse are both 65, have $1 million in savings, and collect $30,000 a year in Social Security. Is that enough to fund a $70,000 a year retirement?

It will depend on your personal circumstances, particularly where you live, but $70,000 may be enough for some households. However, it is a bit more difficult to answer if your assets can generate $70,000 per year. Here are some important things to consider. And if you need more help with retirement planning, consider working with a financial advisor.

Consider the cost of living

Can you afford to retire and live on $70,000 a year? Jeremy L. Suschak, a certified financial planner (CFP) with DBR & Co., says it’s generally manageable, but ultimately depends on your individual retirement circumstances. Where do you plan to live, for example, and what are the costs of living? What assets do you need to fall back on and what liabilities or liabilities do you have? Are you supporting dependents and what kind of lifestyle do you want to lead?

Perhaps most of all, how is your health?

“It will help if lifestyle expenses are low and there is zero or minimal debt,” Suschak told SmartAsset. “Having adequate insurance coverage will also be essential so that significant and unforeseen out-of-pocket expenses do not derail spending limits.”

An income of $70,000 per year is close to the US average, so it can work for many households. Just make sure it can work for yours.

Assessing your portfolio

Can your portfolio generate $70,000 per year? When answering this question, think about how much income your savings and investments will generate.

Let’s say you follow the 4% rule, meaning you withdraw 4% of your portfolio in the first year of retirement. Here, that would give you $40,000 in your first year of retirement, and then a little more each year after that to account for inflation. By combining your withdrawals with a Social Security benefit of $2,500 per month, you’ll be able to meet your $70,000 income goal. Be warned, though: you’ll run out of money in about 20 years.

But the good news is that you can do even better.

The above scenario assumes that you keep your portfolio entirely in cash. If you invest it, even modestly, you can extend the longevity of your portfolio and/or generate more income. For example, say you put everything in links. Right now that would give you about a 5% return. Combined with Social Security, that would generate about $80,000 a year indefinitely. Or say you buy a $1 million annuity. That would likely pay over $107,808 (again combined with Social Security), guaranteed for life.

Can this portfolio generate $70,000 per year? Yes. But it can do even more if you let it.

Set up the right portfolio for your financial goals with a financial advisor.

Don’t forget taxes

It matters quite a bit whether the money in the portfolio has already been taxed or not.

If you hold that money in a 401(k), traditional IRA, or other pre-tax account, you’ll pay income taxes on your distributions, as well as taxes on 85% of your Social Security benefits. Keep this in mind because your after-tax income will end up being less than $70,000.

On the other hand, if you have $1 million in a Roth IRA or Roth 401(k), you won’t pay taxes on portfolio withdrawals. That money was already taxed, so it had the luxury of growing tax-free. However, you’ll still pay taxes on 85% of your Social Security benefits, so expect about $3,300 a year in federal income taxes.

Allow for inflation

Finally, don’t forget about inflation.

While your Social Security benefits are indexed to inflation, interest and annuity payments are not. While comfortable in 2023, an income of $70,000 doesn’t have much of a cushion. So you may want to invest for some growth, otherwise by the end of retirement inflation could make it a very tight budget.

Talk to a financial advisor today to plan a path to your financial goals.

Conclusion

With $1 million in the bank and a $30,000 Social Security benefit, you can generate $70,000 a year in retirement income with high probability. And the good news is that you can probably do even better than that with a little smart money management.

Retirement tax advice

• We haven’t had time to discuss state-specific taxes here, but let’s not overlook this important part of the retirement planning equation. SmartAsset’s Retirement Tax Manager can help you understand how your state taxes retiree income.

• A financial advisor can help you build a comprehensive retirement plan. Finding a financial advisor doesn’t have to be difficult. The free SmartAsset tool matches you with up to three verified financial advisors serving your area, and you can have a free introductory call with your matched advisors to decide which one you think is right for you. If you’re ready to find an advisor who can help reach your financial goals, get started now.

• Keep an emergency fund handy in case you face unexpected expenses. An emergency fund should be liquid—in an account that isn’t exposed to significant fluctuations, such as the stock market. The trade-off is that the value of liquid cash can be eroded by inflation. But a high interest account allows you to earn compound interest. Compare savings accounts from these banks.

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The post We are 65 years old, have $1 million in savings and $30,000 in Social Security benefits. Can we live on $70,000 a year? appeared first on SmartReads by SmartAsset.