How do I calculate my total retirement income?
Add up: portfolio withdrawals (4% of invested assets) + Social Security benefit + pension income + any rental/business income. For a household with $1.5M invested, $36k/year Social Security (combined), and a $12k/year pension: $60k + $36k + $12k = $108,000/year total retirement income.
Formula
Total Retirement Income = (Portfolio × Withdrawal Rate) + Social Security + Pension + Other Fixed Income
Example
Portfolio $1.2M × 4% = $48k. Social Security (you): $28k. Social Security (spouse): $18k. Small pension: $8k. Total: $102k/year = $8,500/month. Essentials cost $5,500/mo → comfortable margin.
How it works in detail
Sources of retirement income in order of reliability: (1) Social Security — inflation-adjusted, guaranteed, claiming age determines amount, (2) Pension — if available, check COLA provisions, (3) Portfolio withdrawals — variable, depends on market and withdrawal rate, (4) Part-time work — common in early retirement, (5) Rental income, (6) Annuity income. A key concept: your 'income floor' (guaranteed sources: SS + pension) vs. 'income ceiling' (floor + portfolio + variable). If your floor covers essential expenses, you have much more flexibility with your withdrawal strategy. Consider delaying Social Security to maximize the guaranteed floor.
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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).
When should I claim Social Security?
Each year you delay past 62 increases your benefit 5–8% annually, maxing at 70. The break-even age (where total lifetime benefits equalize) is typically 78–82. If you're healthy and don't need the income, delaying to 70 maximizes lifetime benefits. If you have health concerns or need income immediately, claiming at 62 can be optimal.
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