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We're 65, Have $1 Million Saved and $42K in Social Security Benefits. Can We Live on $90K Per Year? 

My wife and I are both 65 years old. She will retire this year and I’ll work until I’m 67. We’ll get about $42,000 in Social Security and have about $1 million in savings. Can we live on $90,000 per year?

$90,000 per year is going to be pushing the upper limit of what I’d be comfortable with as a general rule. Whether it will work for you, however, is highly individualized. I’ll give you an overview of some of the things you’ll want to look into before deciding if you are comfortable with spending $90,000 per year. (And if you need more help planning for retirement, consider working with a financial advisor.)

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Does Your Expense Number Include Taxes?

Will the $90,000 you expect to spend each year cover your annual tax bill or is that how much money you plan to spend after taxes? The answer to this question is vital. If it’s the latter, you’ll need to withdraw even more of your savings each year, further stressing the longevity of your portfolio.

Whether your savings are held in a tax-deferred, Roth or taxable account matters. I assume your money is mostly tax-deferred, meaning it’s held in 401(k)s and IRAs. You’ll have to account for income taxes that you’ll owe when you start withdrawing that money. If a considerable portion of your assets is in Roth accounts, your distributions are tax-free, which will simply the process. (And if you want more help managing your retirement savings, consider matching with a financial advisor.)

What’s Your Investment Plan and Risk Tolerance? 

You need to invest according to your own risk tolerance. But if your portfolio is too conservative or aggressive it will place additional strain on your savings.

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If you and your wife are especially conservative that will likely inhibit your ability to keep up with that level of spending over time. 

If you’re too aggressive, you may expose yourself to too much volatility, which can also wreck a retiree’s portfolio once withdrawals start.

The 60/40 portfolio has historically been so popular with retirees because it leaves them with enough equity to benefit from the long-term growth that’s often required for a decades-long retirement without too much volatility. It’s not right for everybody, but the point is that if your entire balance is in CDs, for example, your money likely won’t grow fast enough. The opposite is true for a 100% stock portfolio. It’s too volatile and one or two bad market years, especially early on, could be catastrophic. (A financial advisor can help you find the right mix of stocks, bonds and other investments for your risk tolerance.)