I'm 62 With $800k Saved and $2,600 Social Security Income. How Should I Build My Retirement Budget?

Core Insights - The article discusses retirement income planning, emphasizing the combination of Social Security benefits and investment income to achieve a comfortable retirement [1][6][18] - It highlights the importance of understanding the tax implications of different account types on retirement income [9][11][12] Income Sources - A hypothetical scenario presents a pre-tax income of $63,200 from $31,200 in Social Security benefits and $32,000 in investment income, which exceeds the median income for those aged 65 and older [1][6] - Following the 4% withdrawal rate guideline, an $800,000 portfolio could yield an additional $32,000 in the first year of retirement, adjusted for inflation in subsequent years [2][18] Social Security Considerations - Social Security benefits are inflation-adjusted and have been consistently paid since 1940, but projections indicate a potential 17% reduction in benefits by 2035 unless Congress intervenes [4][3] - Previous adjustments to Social Security have included tax increases and retirement age extensions, with potential future fixes available [3][4] Tax Implications - The type of account holding retirement savings (taxable, tax-free, or pre-tax) significantly affects tax liabilities and overall retirement income [5][9] - Withdrawals from pre-tax accounts like traditional 401(k)s are taxed as ordinary income, which can also impact the taxation of Social Security benefits [9][10] Investment Strategies - Asset allocation is crucial; investing in fixed-income securities or diversified portfolios can provide reliable income without depleting principal [13][15] - Stocks can offer higher returns but come with volatility; historical averages suggest a nearly 10% annual return for the S&P 500 [14][15] Retirement Planning Tips - Delaying retirement or Social Security claims can significantly increase retirement income, with a potential $56,000 growth in savings over one year at a 7% growth rate [20] - Reducing housing expenses is vital, as it constitutes a significant portion of retirees' budgets, and relocating to less expensive areas can enhance financial stability [20][18]