How much can I spend per year in retirement?
Multiply your investment portfolio by 4% for a 30-year retirement, or 3.5% for 40+ years. A $2M portfolio supports $80,000/year (4%) or $70,000/year (3.5%). Add Social Security and pension income on top. Most retirees need 70–80% of pre-retirement income.
Formula
Annual Spending Budget = (Portfolio × 0.04) + Social Security + Pension + Other Income
Example
Portfolio $1.8M × 4% = $72k. Social Security (at 67): $30k/year. Total: $102k/year income. Pre-retirement income was $140k → 73% replacement rate (comfortable).
How it works in detail
Your retirement spending comes from multiple sources: portfolio withdrawals + Social Security + pension + part-time work. The 70–80% rule of thumb (you need less in retirement) accounts for eliminated expenses: no more retirement savings, no payroll taxes, potentially lower housing costs (mortgage paid off), no commute costs. But some expenses increase: healthcare (before Medicare at 65), travel, hobbies. The biggest risk is healthcare: a 55-year-old retiring before Medicare could pay $15,000–$25,000/year for ACA coverage until 65. Budget for this explicitly.
Calculate your sustainable retirement spending based on your actual portfolio
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What is the 4% rule for retirement?
The 4% rule says you can withdraw 4% of your portfolio in year one of retirement, adjust for inflation each year, and have a 95%+ probability your money lasts 30 years. It comes from William Bengen's 1994 research, later confirmed by the Trinity Study (1998).
What is a safe withdrawal rate for early retirement (40+ years)?
For retirements lasting 40+ years, research suggests 3.25–3.5% is safer than the traditional 4%. A $2M portfolio at 3.5% provides $70,000/year. With dynamic spending (cutting 10–15% in down markets), you can safely withdraw 4–4.5% even over 50 years.
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