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  • February 18, 2025
I am 53 years old and have 5,000 in savings and currently earn 9,000 per year. If I retire in two years, how much can I safely spend per month?

I am 53 years old and have $695,000 in savings and currently earn $109,000 per year. If I retire in two years, how much can I safely spend per month?

I am 53 years old and have $695,000 in savings and currently earn $109,000 per year. If I retire in two years, how much can I safely spend per month?

I am 53 years old and have $695,000 in savings and currently earn $109,000 per year. If I retire in two years, how much can I safely spend per month?

Denise contemplates freedom at age 55. She just turned 53 and after years of saving and investing, she has amassed a nice savings of $695,000. She earns a salary of $109,000 a year and has two years left to save. But if the Seattle native decides to retire at age 55, she will enough for her entire pensionand how much can she realistically expect to live on each month?

Although she has a decent nest egg, early retirement means she has to stretch that nest egg over a longer period of time. Understanding how much she needs to stretch it starts with coming up with a retirement budget — essentially a budget for how much she can spend each month to make sure her savings last. Although her expenses will be lower in retirement, her income will also be lower, so finding that balance is the tricky part.

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The general rule of thumb is that you should spend between 55% and 80% of your annual earned income each year of retirement to maintain the same standard of living. If Denise has a salary of $109,000, 55% of her annual income would be $54,500, while 80% would be $87,200.

Making a pension budget

If Denise wants to retire at age 55, she has to think about how long she will live. According to the Social Security Administration’s 2024 OASDI Trustees Report, the average life expectancy for men was 75.7 years in 2023, while women were expected to live 80.8 years. So if Denise retires at age 55, she should plan to live at least 25 more years, but possibly much longer. To be on the safe side, she may want to budget until age 90 or 95.

There are several online retirement calculators that can help you create a budget. For example, use this pension calculator (estimating that she will live until age 95), if Denise expects her annual expenses in retirement to be approximately $50,000, receives her Social Security benefits at age 66, continues to save $1,000 per month (11% of her income) until she retires at age 55 and If she gets an annual return on her savings of 7% – and taking into account the annual general inflation of 2% – she will Have collected $820,786 for her retirement.

That means she’s on track to reach her retirement goals, with an average retirement income of €81,022 per year or €6,751 per month – which is almost 80% of her annual salary. It also allows her to pay her expenses while leaving some money for other expenses, such as travel or medical expenses. Her estimated Social Security benefits would be $24,989 per year from age 66 to 95.

However, these numbers can vary greatly depending on the situation when you decide to take your Social Security benefits (you can do this as early as age 62, before full retirement age, but this would permanently reduce your monthly benefit). Where you live also plays a role; Washington state, where Denise lives, is a low-tax jurisdiction for retirees.

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Other factors to consider

Working longer has some advantages. Instead of withdrawing money from your savings, add money to it and benefit from the power of compounding savings. For example, if Denise decides to retire at age 60, she would have $1,225,721 in retirement savings (using the calculator mentioned above). This results in a retirement income of $123,815 per year or $10,317 per month.

When calculating your monthly retirement budget, consider when you will receive your Social Security benefits, whether you have a company pension, and whether you will have other sources of passive income in retirement (for example, you plan to rent). from the basement suite of your home).

Do you also have to take large debts into account? Are you still paying off your mortgage? Do you have a large credit card or student debt? If so, you can continue working longer pay off your debt before you retire? You should also consider if and how your expenses may change. For example, if your health is poor, you may need to do this budget for long-term care.

If Denise chooses to retire before age 65, she will have to do so too think about the costs of healthcare since Medicare doesn’t kick in until age 65. While she may be able to renew her employer-sponsored health insurance, that is not the norm; otherwise, she may have to pay for private health insurance. In addition to her retirement savings, Denise might want that too have emergency savings sufficient to cover major medical expenses or other emergencies.

There are a lot of considerations, so it may be worth it consultation with a financial advisor to establish a retirement plan.

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This article provides information only and should not be construed as advice. It comes without any form of warranty.