What's a Realistic Retirement Budget? I'm 55 With $490k Saved, Making $80,000 Annually.

Your mid-fifties is a good time to do a retirement check.

To be clear, you should always have at least one eye on retirement. This isn’t something to ever forget entirely. But most of the time, that means nothing more than making sure your annual contributions go through in full, on time and to the right places, and that you take any appropriate tax breaks. Otherwise, the best thing you can usually do for your retirement account is to make a good plan and stick to it.

That said, there are a few important exceptions to that rule. One exception is when you speak with your financial advisor. After all, to maintain your retirement plan you need to make that plan in the first place. Another exception is when you periodically check in with yourself and your money. Every once in a while, it’s important to check on your savings and make sure you don’t need to adjust your contributions, change the plan or otherwise make any shifts.

Age 55 is an excellent time for this type of check. At this age, you still have enough time to build real wealth and make meaningful adjustments, but at the same time, your retirement is close enough that what was once theoretical is beginning to feel more concrete. For example, let’s say you have $490,000 in a 401(k) and make $80,000 per year. What kind of retirement budget are you on track for?

As you walk yourself through this self check-in, here are some major considerations to make. You can also use this free tool to match with a fiduciary financial advisor if you’re interested in a personalized consultation.

Social Security Income

Your retirement budget generally has three main components: Social Security income (fixed, taxed at a beneficial rate), portfolio income (variable, with variable tax rates), and spending (based on personal needs and lifestyle).

To gauge what will be a realistic retirement budget, first estimate your Social Security income. Your Social Security benefits will be based on the amount you earned during your working life. Specifically, the government gives you credits for your 35 highest earning years, then calculates your benefits on those accumulated credits. So if you are still working, your Social Security benefits might increase if you earn more money in future years.

t However, at age 55 with $80,000 per year in earnings, if you retire at age 67 and maintain that income, you are likely to collect about $3,533 per month ($42,406 per year) in benefits. You can always get a personalized estimate of your future benefits based on your current credits by asking the SSA directly, too.

The amount of your Social Security benefits is the basis of your retirement budget. You will receive this amount, adjusted each year for inflation, for the rest of your life. If you delay collecting benefits, you can increase this amount up to a maximum of $52,583 at age 70, but for right now, we’ll assume you begin collecting at full retirement age (67 years old).

Portfolio Savings

If Social Security makes up your base income, your investment portfolio will make up any additional income. In this scenario, you have about 12 years left until full retirement age. Your income, then, will depend on the value of your portfolio at retirement age and how you choose to manage that money in retirement.

Let’s assume you make the standard 10% contributions to your portfolio each year, giving you $8,000 per year in additional funding. (We will overlook inflation in this example to keep things simple.) If your portfolio generates a mixed-asset 8% rate of return, you might have about $1.4 million in your portfolio by age 67.

But that’s just one number, based on one set of assumptions. This amount can vary significantly based on your savings, your rate of return and many other variables. For example, say that you invest in a safer, more conservative bond-based portfolio that earns a 5% corporate bond rate of return. That might give you about $1 million at age 67. On the other hand, say that you invest entirely in a higher risk, growth-oriented S&P 500 index fund. That might give you about $1.9 million by age 67.

For the purposes of this article, we will assume a middle-ground approach, one that could give you about $1.4 million to retire on. And remember: These examples are simplified for illustrative purposes. Inflation, different rates of return and other considerations might impact your own numbers. Consider matching with a financial advisor if you need help running the math for projections based on your goals.

Income Structure

The next question is how you structure the income you draw down from this portfolio. Your approach to drawing income from your retirement portfolio depends significantly on your approach to risk. Often, this is described as a your tolerance for risk, but this actually, it is about risk management. You should approach risk not based on how much you are willing to roll the dice, but rather on your capacity to manage or adapt to losses if and when they occur.

If you are not simply willing to chance it, do not accept higher risk assets. That’s a gamble, not a plan. If, however, you know how you will adapt to losses or reduced portfolio income, go ahead and invest in higher risk/higher return assets.

Potential Approaches to Consider

For withdrawals, you might take a few different approaches:

Take the traditional 4% withdrawal strategy, where you withdraw 4% of your portfolio each year for 25 years, with conservative investments that primarily offset inflation. In this case, you might expect for portfolio income of about $56,000 ($1.4 million * 0.04), combined with Social Security for a total income of about $98,406 per year. Some financial advisors may suggest that this approach is unrealistically conservative in the current market, and given that the average triple-A corporate bond has averaged around 5% interest rates in recent years, this may be true. Even if you moved your portfolio entirely into 5% interest bonds at retirement, that yield would generate $70,000 of annual interest payments alone without drawing down on the portfolio principal ($1.4 million * 0.05).
Invest for aggressive growth, taking a higher risk/higher reward approach to your retirement income. In this case, you might leave your money in an S&P 500 fund. This would give you the market’s potential 11% average annual returns, but with exposure to the down years associated with equities. This approach might generate $154,000 in portfolio returns during average years, while accepting that some years could be significantly higher and others significantly lower. A large emergency fund may be appropriate in a high-risk case.
Opt for a lifetime annuity. This product has the virtue of security, offering a guaranteed monthly income for life. However, a lifetime annuity also has the downside of inflation exposure, since your payments will never increase over time. A representative annuity, if purchased at age 67 for $1.4 million, might pay you around $9,000 per month, or $108,000 per year.

Hypothetical Example

These are just a handful of possibilities. To continue the example started above, let’s take a middle-of-the-road option.

Let’s assume you invest in bonds and withdraw 5% of your portfolio per year. This might give you a combined income of around $112,400 per year, and even that number is likely conservative if you invest in bonds paying 5% interest and draw down some of your portfolio’s principal as well as yield each year.

This figure serves as your budgetary starting point: around $112,400 per year.

Spending and Taxes

The next question when making your retirement budget is, will that be enough? This depends entirely on your spending, needs and any applicable taxes.

As a place to start, most financial advisors recommend the 80% rule of thumb. That is, in order to maintain your current standard of living in retirement, you should expect to spend about 80% of the income you needed during your working life. This estimate accounts for the fact that your spending typically decreases in retirement, plus that you won’t need to set aside income for your retirement savings any longer.

So, you can start there. If you live on $140,500 or less ($112,400 / 0.8), then there’s a good chance that these numbers will meet your budget and match your needs. Given that you make $80,000 per year, you’re on track to potentially have more money in retirement than you do today, but remember that inflation will cause costs to be higher in the future. At a 2% rate of inflation over the next 12 years, $80,000 today could be worth the same as about $100,000 in the future.

Budgeting for Taxes

Taxes are also going to cut into your gross income. While Social Security generally receives some tax break, your portfolio income will put you at the highest tier of Social Security taxes in this example, with 85% of your benefits being taxed. And if your retirement portfolio is in a 401(k) or other pre-tax account, you will also owe income taxes on your withdrawals. You can consider a Roth conversion at this point if you want to avoid such taxes in the future as well as required minimum distributions (RMDs), which cause some level of inflexibility in your withdrawals.

You can start to run some numbers. The question here is, how will your spending match your income? The best way to figure that out is to analyze your monthly budget. How much do you spend each month? How much of that is nondiscretionary (housing, medicine and bills, for example), and how much of it is discretionary (think things like entertainment and travel)? Where can you make adjustments if you need to?

But again, the good news is that you have a lot of flexibility in this budget. Basic estimates suggest that you are likely to have a comfortable retirement income relative to your current income. So odds are that your game plan here can simply be to stay the course.

Catch-Up Opportunities at Age 55

If you are not confident these numbers are high enough to suit your retirement vision, your age can work in your favor here: By your mid-fifties, several rules and planning opportunities become available that can help strengthen your retirement position. These are age-based provisions that can materially change how much you’re able to save or withdraw, including:

Age 50+ contribution boosts. Once you’re over 50, most workplace plans and IRAs allow catch-up contributions. This gives you the ability to increase savings during your final high-earning years. These higher limits can meaningfully increase your balance by retirement age.
“Rule of 55” early-access withdrawals. If you leave your job in or after the year you turn 55, many employer retirement plans allow penalty-free withdrawals. This only applies to your current employer’s plan, but it can offer flexibility if you retire early or shift careers.
Health Savings Account (HSA) contributions. If you are eligible for an HSA, individuals age 55 and older can make an extra catch-up contribution each year. Because HSA funds grow tax-free and can be used for medical expenses in retirement, this can serve as a valuable tool.
Roth conversion window. Your mid-fifties are often a strategic time to review whether partial Roth conversions make sense. You may have lower income now than you will later due to RMDs or Social Security benefits. Converting portions of pre-tax accounts can help reduce future taxable withdrawals.
Review of insurance and long-term care needs. This is also the period when many people reassess long-term care coverage, life insurance, disability coverage and other protections. Your needs may be changing, and adjusting coverage now can help reduce the strain on your retirement savings later.

Bottom Line

Your mid-fifties is an excellent time to take stock of where you are in your retirement planning. With enough time left to boost your savings, make sure to look at your Social Security, your portfolio and your likely needs, then figure out if you’re on track to have the kind of budget you want to live on.

Tips on Long-Term Investing

A retirement portfolio is the definition of long-term investing. You want to buy assets that you can leave in place year-over-year, and here’s our guide to how you can do just that.
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 vetted financial advisors who serve your area. 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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