How much can I spend in retirement each year? The answer depends on several factors, including your retirement savings, expected investment returns, inflation, how long you expect retirement to last, and how much money you want to leave as a legacy.
What Determines How Much You Can Spend in Retirement?
Your annual retirement spending depends on the relationship between your available savings and the assumptions you make about the future. A larger retirement balance may support more spending, while a longer retirement, higher inflation, lower investment returns, or a larger desired legacy can reduce the amount available to spend each year.
Your Retirement Savings Balance
The amount you have saved when you enter retirement is one of the biggest drivers of how much you may be able to spend each year. A larger starting balance generally gives you more flexibility, while a smaller balance may require lower spending, a later retirement date, additional contributions, or a smaller legacy target.
How Long Your Retirement May Last
A longer retirement means your savings may need to support more years of spending. Someone planning for 20 years of retirement may have more annual spending flexibility than someone planning for 30 years, assuming the same starting balance, investment returns, inflation rate, and legacy goal. This is why your planning horizon matters when estimating sustainable retirement spending.
Longevity is an important retirement-planning variable because a longer retirement generally requires assets to support more years of spending.
The Social Security Administration notes that life expectancy is an important consideration when planning for retirement because retirement may last for decades.
Investment Returns and Inflation
Investment returns can help your retirement savings grow, but inflation reduces purchasing power over time. Looking only at a nominal investment return can make a retirement projection seem stronger than it really is. Using an inflation-adjusted, or real, return can give a clearer picture of how much future spending may be worth in today’s dollars
Your Desired Legacy Amount
Your legacy goal changes the amount of retirement savings available for spending. If you want to preserve a larger amount at the end of your planning horizon, less of the portfolio is available to support annual spending. A smaller legacy target may allow more spending, while a larger target may require lower withdrawals or stronger assumptions.
Retirement Spending Is a Tradeoff
Retirement planning often involves balancing spending today with preserving money for later. Under the same assumptions, spending more each year generally leaves less remaining at the end of the planning horizon, while spending less may preserve a larger legacy. Comparing multiple scenarios can help make that tradeoff easier to understand.
Example Retirement Spending Scenario
Imagine someone retires at age 65 with $1,000,000 in savings, expects a 6% annual investment return, assumes 2.5% inflation, plans through age 90, and wants to leave a $200,000 legacy. Their estimated annual retirement spending will depend on how those assumptions interact over the full retirement period. Changing even one assumption—such as inflation, investment return, retirement age, or legacy target—can materially change the result.
Compare Different Retirement Spending Scenarios
A single retirement estimate is only one scenario. Comparing different assumptions can show how sensitive your plan is to changes in investment returns, inflation, retirement age, planning horizon, and desired legacy. Running several scenarios can help you see which assumptions have the biggest effect on your estimated annual spending.
Estimate How Much You Can Spend in Retirement
If you want to explore your own assumptions, use the Retirement Spending & Legacy Calculator to estimate annual and monthly retirement spending while working toward a desired legacy amount. You can adjust your retirement age, savings, contributions, expected return, inflation rate, planning horizon, and legacy goal to compare different scenarios. Run the Retirement Calculator.
Educational estimates only. This content is for general informational purposes and is not personalized financial, investment, tax, legal, estate-planning, or fiduciary advice. Actual outcomes may differ materially from the examples and assumptions discussed.