Have $300,000 to Spend in Retirement? Here’s What You Can Budget per Year

It’s no secret how challenging it can be to put money away for retirement. If you’ve built up a retirement fund of $300,000, congratulations! You’re definitely doing something right. Now that you’ve built the kitty, it’s time to figure out how far it can take you in retirement. 

The rule of thumb

A common rule of thumb is that you can safely withdraw 4% from your retirement account your first year of retirement, and then adjust it for inflation each year. The theory goes that if you’ve invested about 50% in stocks and 50% in fixed-income assets like bonds, withdrawing this amount of money means you don’t risk running out of funds during a 30-year retirement. 

The reason we mention the importance of how your money is invested is because some of what you withdraw will be interest on those investments. Depending on how well the market is doing at the time, most of the money you withdraw in your early years of retirement may be interest earned on your investments. 

As you prepare for retirement, you’ll find that not everyone agrees with the 4% rule. Some experts think the percentage is too high, and some believe it’s too low. For the sake of simplicity, though, that’s the percentage we’ll use in this scenario. 

This rule indicates that you can withdraw $12,000 annually or $1,000 per month ($300,000 x .04 = $12,000).

A scenario

In addition to the money you’ve saved, you may have other retirement income to count on. According to the Social Security Administration (SSA), the average Social Security benefit for January 2024 was $1,907. 

Let’s assume that you’ll receive an average Social Security payment and plan to live solely on it and 4% of your retirement savings. Before taxes, that leaves you with $2,907 to add to your checking account.  

If you live in any of these nine states, good news! You won’t be charged state taxes on retirement benefits:

• Alaska
• Florida
• New Hampshire
• Nevada
• South Dakota
• Tennessee
• Texas
• Washington
• Wyoming

If you’re fortunate enough to live in one of these four states, you can rest assured that your state doesn’t charge taxes on retirement benefits, either. This includes 401(k) accounts, IRAs, and pensions. The bottom line is that it gives you more money to spend or tuck away in savings. 

• Illinois
• Iowa
• Mississippi
• Pennsylvania

In addition, these states tax a portion of Social Security payments:

• Colorado
• Connecticut
• Kansas
• Minnesota
• Montana
• New Mexico
• Rhode Island
• Utah
• Vermont

Factors you may be able to control

It can be helpful to have latitude as to when you’ll retire, particularly if you’re concerned about falling short in retirement. According to the Social Security Administration, the maximum benefit you can collect in Social Security depends on a couple of factors: How much you earned during your working years and when you retire. 

For example, if you retire at full retirement age (around 67 for most of us), your maximum benefit in 2024 could be as much as $3,822. If you hold out until age 70, that maximum jumps to $4,873. If you decide that 62 is the right age for your retirement, your maximum benefit would be just $2,710. 

Your mileage will vary

If your dreams of retirement center around fishing, visiting your grandchildren, or volunteering in your community, you’re not going to need as much income as someone who has dreams of sailing the world or taking up an expensive hobby. 

The best way to get a sense of where you stand with a retirement savings of $300,000 is to create a post-retirement budget. It won’t be exact, but you should be able to get close. Add up all the expenses you expect to have in retirement, including housing, transportation, and health care. Once you’ve designed a complete budget, compare it against your anticipated income. 

Let’s say your anticipated retirement income is $2,907. Is there a gap between that amount and how much you expect your bills to be? Is it too close for comfort? If so, you have a few options:

• Commit to saving more money before retirement arrives.
• Delay Social Security until age 70.
• Continue to work part-time after your official retirement. Getting out to earn more money is a win-win in some ways. It can keep your social and mental skills sharp and make retirement a little more comfortable. 

Don’t be hard on yourself if the idea of retirement makes you nervous. It’s natural to feel a little anxious about something you’ve never experienced before. The goal is to do everything you can while you’re still employed to make the entire process easier.

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