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Retirees with a relatively small pension are generally more dependent on social security than people with more savings.
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Retirees typically have to make do with what they have. A little financial maneuvering can help boost their portfolio and part-time work can provide extra income, but many retired households have fixed finances. Take, for example, a retired couple with $200,000 in savings, plus Social Security. How can they make that amount last the rest of their lives? Let’s look at their options.
When it comes to retirement planning, you need to dig into the details
A couple with $200,000 in savings, plus Social Security, will likely need to do some budgeting to make their money last. This isn’t out of the ordinary for what it’s worth, but it’s an important sentiment to understand.
A couple’s financial planning during their retirement depends on a number of important details, including:
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Age: At age 70, a retired couple has more options than an 80-year-old couple, but they also likely have to factor in an additional 10 years of life expectancy.
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Location: Location is a big factor in a retiree’s cost of living. Within this question, do you own or rent your home? What are the taxes like where you live?
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Assets: In addition to your pension provisions and savings, do you own other significant assets, such as a home, that you can borrow money for or sell if necessary?
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Health: If you need additional income to cover medical expenses, can one partner return to work?
If you need help with more than just managing your investments, a financial advisor can create a comprehensive financial plan for you that addresses the many aspects of your financial life.
How can you supplement your social security?
Social Security will likely make up the bulk of this couple’s annual income. The first step is to determine their benefits. For example, the average Social Security retirement benefit is $1,860 per month (as of December 2023). With two people, that would average out to $3,720 per month, or $44,640 per year. After Social Security, there’s portfolio income.
There are several ways our hypothetical couple could manage their savings. One option is to set aside this money as an emergency fund, and live entirely off of Social Security. But in their 70s, this might not be the best use of their money. Instead, this portfolio could provide a small supplement to their Social Security benefits.
For example, suppose they followed the 4% rule and withdrew 4% of their savings in their first year of retirement and then adjusted their withdrawals each year for inflation. This could give them an extra $8,000 in their first year of retirement. This is a fairly conservative approach that could boost their annual retirement income to nearly $53,000 per year.
While some retirees in their 70s might have a portfolio weighted more heavily toward bonds and safer investments, our hypothetical couple could also invest their $200,000 more aggressively. For example, if their portfolio yielded an 8% or 9% annual return, in line with historical S&P 500 averages, they could potentially afford to withdraw between $16,000 and $18,000 without dipping deeper into their balance. This could boost their household income to nearly $63,000. However, it would come at the cost of volatility, bad years, and intermittent losses.
They could also invest their $200,000 in an annuity. Depending on the contract, a $200,000 annuity for two people could generate about $14,400 a year in additional income, according to Schwab’s income annuity estimator. That would bring the couple’s household income to about $59,000 with Social Security in year one. While it’s more reliable and consistent than income from an asset-balanced portfolio, annuity income isn’t indexed to inflation. But if you’re considering an annuity, it’s best to discuss it with a financial advisor first.
Creating a budget
Next, it’s important to create a retirement budget. For a couple in their 70s, this isn’t the speculative exercise it can be for couples who are years or decades away from retirement. Instead, a couple in their 70s likely already knows what they’ll be spending on a regular basis during retirement.
As we discussed above, our hypothetical couple could reasonably expect to have between $50,000 and $60,000 per year, combined with Social Security and portfolio withdrawals. From there, the question becomes: spending. Is this enough to support their current lifestyle? Can this income meet their needs and hopefully provide some comfort?
If not, they may want to review their spending and see what they can cut out of their budget. By cutting discretionary spending and adjusting major items like housing costs, you can create more wiggle room in a monthly budget. Our hypothetical couple might want to ask themselves what their biggest expenses are and how flexible they are. For example, is it possible to move to a smaller house? Could they move to a cheaper neighborhood? Could they handle medical expenses differently?
And if you need help putting together a sustainable retirement income plan to cover your expenses, consider talking to a financial advisor.
Conclusion
The point behind these income options is this: Without adequate planning, it can be difficult to maintain $200,000 in savings and Social Security. To last, most retirees will rely on Social Security, using their savings as a form of supplemental income based on personal need and risk tolerance. Additionally, without returning to work, it will likely take careful budgeting to make this income last.
Tips for retirement budgeting
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A financial advisor can help you build a comprehensive retirement plan. Finding a financial advisor doesn’t have to be difficult. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can schedule a free introductory meeting with your advisors to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
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Creating a budget is essential to making your savings last, but how do you do it? With the right strategy, you can create a solid, long-term retirement budget that will give you a solid plan for the years to come. SmartAsset also has a budget calculator, as well as an expense calculator that can come in handy.
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Keep an emergency fund on hand in case you run into unexpected expenses. An emergency fund should be liquid—in an account that isn’t subject to big swings like the stock market. The tradeoff is that the value of liquid assets can be eroded by inflation. But a high-interest account allows you to earn compound interest. Compare savings accounts from these banks.
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