What's a Realistic Retirement Budget? I'm 52 With $680k Saved, Making $115,000 Annually.
Eric Reed
9 min read
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Your early-fifties is an excellent time to start making a retirement budget.
In your 40s, you risk jumping the gun. You're usually not even halfway through your career at age 40, since many people start their careers between 21 and 25 and finish working between 65 and 70. So, with around 25 to 30 earning years left, there will be a lot of guesswork when it comes to figuring the exact numbers on your retirement income.
In your 60s, you risk missing your opportunities. At age 60, most people only have a few years left before they retire. This is when you should be putting the finishing touches on your savings, and you probably won't have the time to make serious adjustments if you realize that you need a lot more money than you have.
Your early 50s, on the other hand, is a good sweet spot. You're far enough into your career to have a good understanding of your earnings, needs and lifestyle. But, on the other hand, you still have lots of time to make changes as needed.
For example, say that you're 52 years old. You have $680,000 in a 401(k) and make $115,000 annually. Now's a good time to start thinking about your budget in retirement, and here's a good way to do that. You can also use this free tool to match with a financial advisor if you’re interested in professional guidance for retirement planning.
Start With Social Security
In most retirement plans, the place to start is with Social Security.
Right now, with around 15 years of work life ahead of you, your Social Security benefits will still be an estimate. That said, you can get a pretty good estimate of your minimum future benefits. While your future earnings might increase your Social Security credits, and so your retirement benefits, you certainly won't lose any in the years ahead. So you can start your budget planning knowing at least how much to expect in guaranteed, inflation-adjusted income each month.
The quick way to do that is with our Social Security calculator, which will give you a back-of-envelope estimate based on your age and earnings. The slower, but more accurate, option is to contact the SSA itself and get an estimate directly from the source.
Based on your current age and income, you might expect around $3,200 per month/$38,400 per year in Social Security benefits (2024 dollars, not accounting for inflation) if you claim at age 67. If you want to increase your budget, you could delay benefits to age 70 for a maximum of $3,968 per month/$47,616 per year.
What Is Your Portfolio Strategy?
Your portfolio strategy is how you manage your savings and investments. This, in turn, will help define your budget. There are many ways to look at this, but it generally boils down to two stages for most investors:
Growth investment strategy
Retirement investment strategy
Your growth strategy is how you invest to build wealth right now, while you're working. At this stage, people typically take higher-risk positions because they have the time and income to recover losses. This is also why it's a somewhat foolish practice to chart the ups-and-downs of your 401(k) in any given year. You won't need this money for a long time to come. It can weather the occasional bear market, and you probably don't want to change your position based on temporary downturns.
Your retirement investment strategy is how you invest your money to maintain your built wealth in retirement. At this stage, people typically take safer positions because they have less flexibility to manage losses.
Together, these two strategies will define your retirement income. Your growth strategy will define how much money you have, while your retirement strategy will define how you manage and withdraw it as income.
What Is Your Portfolio Income?
Based on your portfolio strategy and your Social Security benefits, we can estimate some likely retirement incomes for you down the road. This will be the starting point for any retirement budget. Keep in mind, these examples are oversimplified for illustrative purposes. You can get matched with a financial advisor for more detailed calculations based on your circumstances.
For example, let's say that you take a very black-and-white approach to your portfolio. You invest entirely in an S&P 500 index fund while you're working, then switch entirely to a Aaa corporate bonds in retirement. This might generate the market's 11% returns during your working life, subject to the stock market's very high volatility. It might then generate the bond market's average 5% yield during retirement, but with the security and income of debt-based assets.
With continued 10% contributions to your retirement fund ($11,500 per year), this might give you the following profile:
Combined Income In Retirement: $206,400 per year minimum
We're being serious. With ordinary 10% retirement contributions, at the market's average rate of return, you might have more than $3.3 million in savings by age 67. Compound returns can be a wonderful thing. (Remember, these numbers are not adjusted for inflation, which will impact the value of your retirement income.)
And with a bond-based portfolio, you might generate $168,000 per year in interest payments alone. This is money you could generate without ever needing to touch your underlying principal. You could potentially boost this up to $200,000 per year of portfolio income for around 30 years by also selling assets over time.
There are many other strategies you could pursue based on your approach to risk and your needs in retirement. For example, you might take a more conservative approach to saving during your working life. This is not uncommon. So, say that you pursue a mixed-asset portfolio with 8% returns. In retirement, however, you accept more risk and maintain that 8% mixed-asset portfolio. This might give you the following profile:
Note how your shifted returns change this profile. Although your lower rate of returns while working led to more than a million less in savings, the potentially higher rate of returns in retirement more than offsets this. Of course, there are no free lunches. Those higher returns will come with more risk and more volatility, and you would need a good plan for what to do during bear years.
Finally, you might run the other way altogether. You could invest everything in an annuity. This would give you guaranteed, lifetime income (or the closest you can get, at least, subject to bankruptcies and system failure). Say that you kept your money in the stock market, potentially growing to $3.36 million by age 67. Then you slid it all across the table upon retirement, investing entirely in an annuity. You might have the following profile:
This is a min/maxed profile, in which you invest for maximum gains and risks during your working life and maximum security in retirement. It also exposes you to inflation risk. Your annuity payment will not grow with inflation, so you will need a plan for managing those increased costs over time. Since you cannot access the funds held in the annuity itself, typically the best option is to set aside a portion of your annuity payments as a sort of in-retirement savings and liquidity plan.
What Are Your Taxes and Expenses?
These are just a range of possible incomes. Your real numbers will depend on how you choose to structure your investments and your approach to savings, along with some elements of chance. But, for the sake of example, let's take our market/bond strategy and say that you have a combined income of $206,400 per year in retirement.
Your final step is to see how your after-tax income will meet your spending needs. Here, you have a 401(k). This means that you will pay income taxes on everything you withdraw from this account in retirement. (You can potentially manage this with a Roth conversion, but that analysis is outside the scope of this article.)
As an individual with $206,400 per year of income you can expect to pay about $40,488 in federal income taxes. You will have an after-tax income of $165,912, less any state and local income taxes.
From there, consider your needs. Right now, you have an income of $115,000, so this retirement portfolio is looking very generous. If anything, you're on track to increase your standard of living in retirement, possibly by quite a lot. If anything, you might be able to consider retiring early. But double check on this. How will these numbers match your current and future planning? You still have more than enough time to adjust your savings and investment, so make adjustments if necessary.
Your retirement budget will be defined by several factors, but perhaps the three most important are your Social Security benefits, your plan for saving while you work, and your plan for managing investments while you are retired. Your 50s are a perfect time to start looking at exactly how those numbers will start to add up to an income.
A financial advisor can help you build a comprehensive retirement plan. 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.
Keep an emergency fund on hand in case you run into unexpected expenses. An emergency fund should be liquid — in an account that isn’t at risk of significant fluctuation like the stock market. The tradeoff 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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