I’m 53 years old, have $695,000 in savings, and currently make $109,000 per year. If I retire in two years, how much can I safely spend per month?

Denise is considering freedom at 55. She just turned 53, and after years of saving and investing, she’s amassed a decent nest egg of $695,000. She earns a salary of $109,000 per year and still has two years left to save. But if the Seattle native decides to retire at 55, will she have enough money to last her through retirement and how much can she realistically expect to live off each month?

Even if she has a decent nest egg, retiring early means she will have to stretch that nest egg over a longer period of time. Understanding how much money she’ll need to save starts by creating a retirement budget – essentially a budget for how much she can spend each month to ensure her savings last. Even though your expenses will be lower in retirement, your income will also be lower, so finding that balance is the tricky part.

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The general rule is that for each year of retirement, you will spend between 55% and 80% of your annual employment income to maintain the same standard of living. If Denise had a salary of $109,000, 55% of her annual income would be $54,500 while 80% would be $87,200.

Create a retirement budget

If Denise wants to retire at 55, she will need to think about her lifespan. The average life expectancy for men was 75.7 years in 2023, according to the Social Security Administration’s OASDI Administrators’ 2024 Report, while women were expected to live to 80.8 years. So, if Denise retires at age 55, she should plan to live at least another 25 years, and possibly much longer. To be safe, she may want to budget until age 90 or 95.

There are several online retirement calculators that can help you budget. For example, using this retirement calculator (which estimates living to age 95), if Denise expects her annual retirement expenses to be around $50,000, takes her Social Security benefits at 66 years, continues to save $1,000 per month (11% of her income) until she retires at age 55 and earns an annual rate of return on her savings of 7% – and taking into account annual general inflation of 2% – she will have accumulated $820,786 for retirement.

This means she is on track to meet her retirement goals, with an average retirement income of $81,022 per year or $6,751 per month, which represents almost 80% of her annual salary. It also allows her to pay her expenses, while still having some money for other expenses, such as travel costs or medical bills. His estimated Social Security benefits would be $24,989 per year from ages 66 to 95.

These numbers, however, can vary greatly depending on when you decide to take your Social Security benefits (you can take them as early as age 62, before full retirement age, but that would definitely reduce your monthly benefit). Where you live also plays a role; Washington state, where Denise lives, is a low-tax jurisdiction for retirees.

Learn more: The Cost of Living in the United States Is Still Out of Control: Use These 3 “Real Assets” to Protect Your Wealth Today

Other factors to consider

There are some benefits to working longer. Instead of withdrawing from your savings, you will increase them and benefit from the power of compounding. For example, if Denise decides to retire at age 60, she will have retirement savings of $1,225,721 (using the calculator above). This translates to a retirement income of $123,815 per year or $10,317 per month.

When calculating your monthly retirement budget, you will need to take into account when you will receive your Social Security benefits, whether you have a workplace pension, and whether you will have other sources of passive income in retirement (e.g. example, you are considering renting accommodation). in the basement of your house).

You will also have to take into account any large debts? Are you still paying off your mortgage? Do you have significant credit card or student debt? If so, can you work longer to pay off your debts before retiring? You’ll also need to consider if and how your spending might change. If your health is failing, for example, you may need to budget for long-term care.

If Denise chooses to retire before age 65, she will also need to factor in the cost of health care since Medicare doesn’t kick in until age 65. Although she can extend her employer-sponsored health insurance, this is not the norm; otherwise, she may have to pay for private medical insurance. In addition to her retirement savings, Denise may want to have enough emergency savings to cover a large medical expense or other emergency.

Many factors must be taken into account. It may therefore be helpful to consult a financial advisor to determine a retirement plan.

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This article provides information only and should not be considered advice. It is provided without warranty of any kind.