Retirement Spending: A Couple's Guide to Income and Withdrawal Strategies

As we approach retirement, one of the most pressing questions on our minds is: how much can we spend without running out of money? For a couple aged 66 with $715k in 401(k)s and $2,700 in Social Security benefits, we'll explore withdrawal strategies, the impact of inflation, tax optimization, and additional income sources to help you make informed decisions about your retirement spending.



1. Withdrawal Strategies: The 4% rule suggests withdrawing 4% of your nest egg in the first year of retirement, adjusting for inflation annually. For this couple, the initial withdrawal would be around $28,600. However, with $2,700 in Social Security benefits, their total income would be $31,300. To maintain their lifestyle, they should consider adjusting the 4% rule to a 3.5% withdrawal rate, ensuring their savings last longer.

2. Inflation Impact: According to the U.S. Bureau of Labor Statistics, the average annual inflation rate between 2022 and 2024 is projected to be around 2.5%. Assuming a 4% withdrawal rate from their $715k 401(k)s, the couple's initial annual income would be $28,600. After accounting for Social Security, their total income would be $31,300. In five years, due to inflation, their purchasing power would decrease to $27,200, highlighting the importance of adjusting their withdrawal rate or finding additional income sources to maintain their standard of living.

3. Tax Optimization: To optimize their tax situation, the couple should consider a strategic withdrawal strategy from their 401(k)s and Roth conversions. By following the 4% rule, they can withdraw $28,600 annually from their 401(k)s, supplemented by their $2,700 Social Security income. To minimize taxes, they should first withdraw from taxable accounts, then traditional 401(k)s, and finally Roth accounts. Additionally, they could consider Roth conversions to convert pre-tax 401(k) funds to Roth accounts, paying taxes upfront but enjoying tax-free withdrawals later. This strategy can help them manage their taxable income and potentially reduce their overall tax burden in retirement.

4. Additional Income Sources: To determine how much you can spend in retirement, consider the 4% rule, which suggests withdrawing 4% of your nest egg in the first year, adjusting for inflation annually. With $715k in 401(k)s, you'd have $28,600 in the first year, plus $32,400 from Social Security, totaling $61,000. However, you may need additional income sources. Consider part-time work, rental income, or annuities. A part-time job could provide $10,000-$20,000 annually, while a $100,000 annuity could generate $5,000-$6,000 annually. Explore these options to supplement your retirement income.

In conclusion, a couple aged 66 with $715k in 401(k)s and $2,700 in Social Security benefits should consider adjusting their withdrawal rate, accounting for inflation, optimizing their tax situation, and exploring additional income sources to maintain their desired lifestyle in retirement. By following these strategies, they can ensure their savings last and enjoy a comfortable retirement.