Is $2.5M Enough To Spend $100K A Year In Retirement, Or Will Taxes Make That Impossible?

"When you are making plans for retirement spending, you need to take many costs into account - including taxes. If you are hoping that $2.5 million will provide you with $100K, you should consider both whether that income is possible at a safe withdrawal rate and how your tax bill is going to affect the amount you have left over to spend."

"Experts traditionally recommended that you follow the 4% rule if you wanted the best chance of your money lasting for at least 30 years. Since that rule says you can withdraw 4% of your account balance in your first year of retirement and then make inflation-based adjustments, your $2.5 million could produce exactly $100,000. However, experts have now revised that downward to say you should limit withdrawals to 3.7%."

Retirement planning must account for many costs, notably taxes, when targeting a specific annual withdrawal. A $2.5 million balance withdrawn at a 4% initial rate would generate $100,000 in the first year, using traditional safe-withdrawal guidance. Recent guidance has shifted lower, with suggestions to limit initial withdrawals to about 3.7%, reflecting concerns about lower future returns and longer lifespans. Choosing a higher withdrawal rate raises the risk of depleting assets and may necessitate additional savings for a cushion. Taxes on withdrawals will reduce spendable income and affect whether $100,000 after taxes is achievable.

Read at 24/7 Wall St.