Whether you’re budgeting or planning for your retirement date, it usually comes down to the same basic math: How much money you can reliably generate and how it compares to your budget. To help you estimate how much you’ll need to retire, let’s use the example of a 50-year-old with an $875,000 401(k) account and a total monthly budget of $5,000 ($60,000 per year).
A financial advisor can help evaluate income sources, simulate withdrawal strategies and evaluate how long your savings may last based on different assumptions.
Estimating your retirement date starts with having a clear understanding of your expenses. An “all” budget considers regular monthly expenses, including housing, insurance, utilities, debt repayment, food, transportation and recurring discretionary expenses. In this example, total expenses are $5,000 per month, or $60,000 per year ($5,000 × 12), which is the income goal that retirement savings must support.
This baseline reflects only predictable spending. Non-routine or one-time costs, such as travel, home repairs or medical bills, that go beyond monthly figures often require additional flexibility to avoid unexpected reductions in savings.
At age 50, it’s also important to know what expenses are likely to change over time. As retirement approaches, expenses such as child care or education savings may decrease, while other expenses such as health insurance, out-of-pocket medical expenses and long-term care insurance may increase.
Some guides estimate retirement spending may be lower than preretirement spending. Using the 80% assumption, an annual budget of $60,000 is equivalent to $48,000 per year ($60,000 × 0.80), or $4,000 per month. This example continues using the full figure of $5,000 per month to reflect current expenses.
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Despite the uncertainty around the program, many families still include Social Security in their retirement plans. If your family budget is $60,000 per year, your pre-tax income will probably be about $83,000 per year unless you have a huge savings plan. Using SmartAsset’s Social Security calculator, that income would translate into about $3,496 per month, or $41,452 per year, in Social Security income if you were collecting benefits at age 65.
By comparison, if you collect benefits at the earliest age (62), your annual estimate will drop to $2,819 per month ($33,828 per year). Compared to your initial estimate at age 65, your benefit at age 66 will increase slightly to $3,764 per month ($45,179 per year). At age 70, your benefit will increase to $5,001 per month ($60,023 per year).
