I’m 67 With $870k in a 401(k), $120k in an IRA and a $2,200 Social Security Check. What’s My Retirement Budget?

Deciding how much to withdraw from your retirement accounts means finding a balance between enjoying life and making your money last. Taking too little leaves you with unused savings, while taking too much risks running out of money later. Taxes also affect how much you can actually spend. To help you create a retirement budget, let’s break down the example of a 67-year-old with $870,000 in a 401(k), $120,000 in an IRA and $26,400 annually from Social Security. Here’s what a withdrawal plan could look based on two rates.

A financial advisor can help you create a withdrawal strategy that balances your lifestyle needs, tax impacts and long-term retirement goals.

Know Your Taxes

A 401(k) and a traditional IRA are both retirement accounts funded with pre-tax dollars. Contributions are deducted from your taxable income, allowing you to grow savings faster because the money enters the account before taxes. In retirement, however, all withdrawals are taxed as ordinary income. This includes both the money you contributed and the investment earnings.

This is different from a Roth IRA, which is funded with after-tax dollars. You do not receive an upfront tax deduction for contributions. The benefit comes later: withdrawals in retirement are tax-free, including both contributions and earnings.

Assuming that you have a traditional IRA in this example, every withdrawal you take in retirement is counted as taxable income. Because this is a pre-tax account, withdrawals are taxed at income tax rates, not the lower capital gains rates that apply to taxable investment accounts.

You should also plan for the taxation of Social Security benefits. Depending on your total income, up to 85% of your benefits may be taxable. This can significantly increase your annual tax bill when combined with withdrawals from pre-tax retirement accounts.

Anticipate RMDs

Required minimum distributions (RMDs) begin at age 73 for anyone with pre-tax retirement accounts such as 401(k)s and IRAs. The IRS requires you to calculate the withdrawal separately for each account, although IRA balances can be combined if you prefer to take the full amount from just one IRA. For 401(k)s, however, the distribution must be taken directly from that account.

You can defer your first RMD until April 1 of the year after you turn 73, but this means you would take two RMDs in that same year—the deferred one plus the regular one for that year. Doubling up distributions could push you into a higher tax bracket, increase the share of your Social Security that is taxable, or affect Medicare premiums.

The amount of your RMD is based on the balance of the account as of December 31 of the prior year and a divisor taken from the IRS Uniform Lifetime Table¹, which assigns factors according to age. At age 73, the divisor is 26.5.

For example, if you still had $870,000 in your 401(k) at age 73, you would divide that balance by 26.5. The result is $32,830, which is the minimum you would be required to withdraw from the account for that year. You would then repeat the same calculation for your IRA using its own balance at year-end.

The RMD rule is designed to make people withdraw money from pre-tax retirement accounts and pay taxes on it. For many retirees this doesn’t have much impact, since their regular withdrawals already exceed the required minimum. The rule matters more if you hold multiple accounts, because you cannot leave one untouched indefinitely while only drawing from another.

Between ages 67 and 73 you can keep your savings in place and choose how to take withdrawals. For example, you might spend down an IRA first before turning to a 401(k). But starting at age 73, you must begin taking minimum withdrawals from every pre-tax account that still holds assets.

Create a Withdrawal Strategy

Creating a withdrawal strategy means aligning your spending needs with what you can draw sustainably from your accounts after taxes. Social Security benefits may be taxable up to 85%, depending on your other income. That means withdrawals from retirement accounts can affect both your taxable income and how much of your Social Security is taxed.

For 2025, the standard deduction is $31,500 for married couples filing jointly and $15,750 for single filers. Individuals age 65 or older also get an additional $2,000 deduction ($1,600 each for joint filers). A temporary $6,000 bonus deduction for seniors was created in the One Big Beautiful Bill Act. This provision applies from 2025 through 2028² and phases out once income rises above $75,000 for single filers or $150,000 for married couples.

To show you how a withdrawal strategy could work, let’s take the example of a household with $870,000 in a 401(k) and $120,000 in an IRA, plus $26,400 a year in Social Security.

With a 5% withdrawal rate, the accounts generate $49,500. Adding Social Security brings total income to $75,900. At that level, about $21,895 of the Social Security benefit is taxable, which results in adjusted gross income of $71,395. After subtracting the 2025 standard deduction of $31,500 for married couples filing jointly, plus the $1,600 per-person age 65+ add-on ($34,700 total), taxable income comes to $36,695. Federal income tax on that amount is about $3,926 (estimate), leaving after-tax income of roughly $71,974. If the One Big Beautiful Bill Act’s senior bonus deduction of $6,000 per spouse applies, the deduction would rise to $46,700, reducing tax to about $2,486 (estimate) and increasing after-tax income to around $73,414.

If the withdrawal rate goes up to 8%, the accounts produce $79,200, which increases total income to $105,600 once Social Security is included. At that level, about $22,440 of the Social Security benefit is taxable (not the full 85%), which brings adjusted gross income to $101,640. After subtracting the standard deduction of $31,500 for married couples filing jointly plus $1,600 per spouse age 65+ ($34,700 total), taxable income is $66,940. Federal taxes on that amount would be about $8,766 (estimate), leaving just under $96,834 after taxes.

If the One Big Beautiful Bill Act’s $6,000 senior bonus deduction per spouse applies, the deduction would rise to $46,700, reducing taxable income to $54,940. Federal tax would then be about $6,386 (estimate), leaving after-tax income of roughly $99,214.

Compared side-by-side, the 5% withdrawal strategy delivers an after-tax income of about $72,000, while the 8% withdrawal strategy provides closer to $97,000 ($99,000 with the OBBBA bonus deduction). The larger withdrawal results in higher spending power in the short term but carries more risk of depleting savings sooner.

Research generally suggests that long-term sustainable withdrawal rates fall between 3.5% and 4% for a 30-year retirement horizon. The right balance will depend on portfolio returns, spending needs and tax treatment, but under these assumptions a sustainable range of after-tax income is likely between $72,000 and $99,000 per year (depending on withdrawal rate and deductions).

Bottom Line

Your retirement budget will depend on a number of factors, but two important issues are taxes and required minimum withdrawals. As you make your retirement budget, make sure to account not only for your withdrawals, but for how much of those withdrawals you will get to keep.

Retirement Planning Tips

• If you need more of a hans-on approach to retirement, a financial advisor can help you build a comprehensive plan. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with 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.
• Don’t forget that your state (and maybe even city) can levy taxes too. If you want to maximize your retirement withdrawals, looking for states that don’t tax those portfolios might be a smart strategy. 

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