Have $700,000 to Spend in Retirement? Here's What You Can Budget per Year

$700,000 is a huge sum, and saving that much money for retirement is quite an achievement. However, since you've already focused on building a nest egg for retirement, you undoubtedly want to know how much you can spend each year without depleting your funds. Here, we'll walk you through the process of figuring that out. 

The general rule of thumb

There is no single consensus on how much you should withdraw from your retirement account each year. However, one rule of thumb is to withdraw 4% from your retirement fund the first year of retirement and then adjust that amount for inflation each year that follows. 

According to the 4% rule, if you have roughly 50% of your retirement funds invested in stocks and the other 50% invested in fixed-income assets, like bonds, the 4% rule means not running out of money for 30 years. 

Remember, any funds you don't withdraw from an investment account continue to earn interest and grow. While there are no guarantees, and the market will experience some down years, history has recorded more bull markets than bear markets. 

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In other words, the market has spent far more time growing and expanding than contracting. Given that stocks lose 35% on average during bear markets but gain 111% on average during bull markets, it's safe to assume that your portfolio can rebound with each bull market. 

If you decide to adopt the 4% rule, your $700,000 will provide you with an annual income of $28,000 ($700,000 x 0.04). 

Guaranteed income

Now that you know you can safely withdraw $28,000 from your retirement account each year, you'll need to add any other regular deposits that hit your checking account. This includes guaranteed income, like pensions and Social Security benefits.

How much you're due to collect depends largely on how much you earn during your career, how long you stay with a company (in the case of pensions), and at what age you decide to retire (in the case of Social Security). 

For example, according to the Social Security Administration (SSA), the average monthly Social Security benefit for January 2024 was $1,907. However, depending on your income while employed, your maximum benefit could be as much as $3,822 if you retire this year at full retirement age. If you decide not to collect benefits until age 70, your maximum benefits jump to $4,873. And if you retire at age 62, your maximum benefit is $2,710. 

Imagine that you're due monthly Social Security benefits of $2,000. That means you can count on an additional $24,000 to add to your retirement account. Based on this scenario, your annual retirement income would be $52,000 before taxes. 

Other sources of income

Do you have any other sources of income, like rental property or an annuity? Be sure to add those to the plus column. 

For some Americans, retirement is just the beginning of long-held dreams. Maybe you've always wanted a fun part-time job, like working at your local zoo, or wondered if you could turn a hobby into a money-making venture.

Whether you're months away from retirement or have decades to go, dream away. Any job that you enjoy may bring in enough income to give your checking account wiggle room or plump up your savings account. 

Benjamin Franklin knew his stuff

Mr. Franklin once declared, "Nothing is certain except death and taxes," and boy, was he right. Uncle Sam doesn't forget about you once you're retired. Chances are, you'll find yourself paying federal taxes for the rest of your life. However, depending on the state where you live, you may get a break on state taxes. 

State taxes

These nine states levy no income taxes: 

• Alaska
• Florida
• New Hampshire
• Nevada
• South Dakota
• Tennessee
• Texas
• Washington
• Wyoming

These four states don't tax retirement benefits, such as 401(k) accounts, IRAs, and pensions:

• Illinois
• Iowa
• Mississippi
• Pennsylvania

These states tax a portion of Social Security payments:

• Colorado
• Connecticut
• Kansas
• Minnesota
• Montana
• New Mexico
• Rhode Island
• Utah
• Vermont

Federal taxes

Knowing how much to budget for federal taxes allows you to develop a more realistic post-retirement budget. This breakdown from Merrill Lynch (issuer of Merrill Edge® Self-Directed brokerage accounts) makes it easy to know what to expect: 

Planning for retirement is a matter of anticipating income and expenses. If you're not comfortable with the final numbers, these three actions can make a world of difference: 

• Save more money between now and retirement 
• Create new sources of post-retirement income
• Pay off as many debts as possible

For many people, the day they retire is one of the best days of their lives. Ideally, the same will be true for you.