I’m 53 years old with $695,000 in savings and currently make $109,000/year — if I retire in two years, how much can I safely spend per month?

Creating a retirement budget

If Denise wants to retire at age 55, she’ll need to consider how long she might live. The average lifetime expectancy for men was 75.7 years in 2023, according to the Social Security Administration’s 2024 OASDI Trustees Report, while women were expected to live to 80.8 years. So, if Denise retires at 55, she should be planning to live for at least another 25 years, though possibly much longer. To be on the safe side, she may want to budget until age 90 or 95.

There are several online retirement calculators that can help you come up with a budget. For example, using this retirement calculator (which estimates living until age 95), if Denise expects her annual expenses in retirement to be around $50,000, takes her Social Security benefit at age 66, continues to save $1,000 per month (11% of her income) until she retires at 55 and gets an annual rate of return on her savings of 7% — and factoring in 2% annual general inflation — she’ll have amassed $820,786 for retirement.

That means she’s on track to meet her retirement goals, with an average retirement income of $81,022 annually or $6,751 a month — which is close to 80% of her annual salary. It also allows her to pay her expenses, while having some money left over for other expenses, such as travel or medical costs. Her estimated Social Security benefits would be $24,989 a year from age 66 to 95.

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

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Other factors to consider

Working longer does come with some advantages. Instead of withdrawing from your savings, you’ll be adding to them and benefitting from the power of compounding. For example, if Denise decides to retire at age 60, she’d have $1,225,721 in retirement savings (using the aforementioned calculator). This results in a retirement income of $123,815 a year or $10,317 a month.

When calculating your monthly retirement budget, you’ll need to factor in when you’ll take your Social Security benefit, if you have a workplace pension and if you’ll have other sources of passive income in retirement (say, you plan to rent out the basement suite in your house).

You’ll also have to consider any major debts? Are you still paying off your mortgage? Do you have major credit card or student debt? If so, can you work longer to pay off your debt before you retire? You’ll also need to consider if and how your expenses could change. If you have failing health, for example, you may need to budget for long-term care.

If Denise chooses to retire before 65, she’ll also have to consider the cost of health care since Medicare doesn’t kick in until age 65. While she may be able to extend her employer-sponsored health insurance, that’s not the norm; otherwise, she may have to pay for private medical insurance. In addition to her retirement savings, Denise may want to have emergency savings that are sufficient enough to cover a major medical expense or other emergency.

There are a lot of considerations, so it may be worth consulting with a financial adviser to determine a plan for retirement.