Retirement budget hinges on timing, taxes and spending discipline

A retirement-planning article from Yahoo Finance’s SmartReads by SmartAsset examines the budget choices facing a 65-year-old married couple with $1.5 million in an IRA and combined Social Security payments of $4,200 a month.

The scenario compares retiring at 67 with delaying retirement and Social Security claims until 70. Using a hypothetical 8% annual return for a mixed-asset portfolio, the article says delaying benefits could lift the couple’s payments to more than $5,200 a month and increase their annual budget by nearly $13,000.

For a couple retiring at 67, the article points to the 4% withdrawal rule as a starting point: withdrawing 4% of the portfolio in the first year and increasing subsequent withdrawals with inflation. It stresses that the rate is a rule of thumb and may need to be adjusted for spending requirements and portfolio performance.

The proposed budget should cover housing, food, recurring bills, healthcare, long-term care, insurance and discretionary expenses such as travel, dining out, hobbies and entertainment. Local living costs also matter, with rents and expenses in high-cost urban areas potentially rising faster than the national average.

Taxes and required minimum distributions are another consideration. Assuming a traditional IRA, withdrawals would generally be taxable, while the article says up to 85% of Social Security benefits could be taxable in an illustrative scenario involving $120,400 of household income.

The article gives an illustrative RMD of at least $66,037 at age 73 if the couple still held $1.75 million in the IRA. It also discusses annuities, Roth conversions and professional advice, while noting that sustainable spending depends on investment returns, inflation, healthcare costs, longevity, location and claiming decisions.