What is a Good Monthly Income?
Last week Chris Abts, our Founder and President, was featured in a US News and World Report article. This is an exert from the article that was published on February 17, 2025.
WHAT IS A GOOD MONTHLY INCOME?
Deciding to retire is no small matter. There are many factors to consider, including whether you’ll be able to pay your bills after leaving the workforce. Financial experts are quick to point out that there are no hard and fast rules when it comes to retirement. However, before you retire, understand what defines a good retirement income for you and where that money will come from
DEFINING A GOOD RETIREMENT INCOME
Determining what is a good retirement income may not be as hard as you think.
“I find that the majority of people have a good handle on how much they need,” says Christopher Abts, a financial advisor with Cornerstone Wealth Management of Prime Capital Financial in Reno, Nevada. That’s because most retirees will have a budget in retirement that is similar to what they spent while working. “No one wants to retire to a lower lifestyle,” according to Abts.
Some work-related expenses, such as commuting costs, lunches out and job-appropriate clothing, will be cut from a budget, but retirees often have the same housing and utility bills. Additional expenses may include travel, new hobbies and entertainment costs.
It also depends on where you are in your retirement. Newly retired people may spend more as they travel and pursue dreams put on hold during their working years. By mid-retirement, spending may be reduced as retirees settle into a slower pace of life. Then, near the end of retirement, costs may rise again as older individuals require more health care and perhaps long-term care.
Workers may be able to calculate how much income they need, but consulting a financial advisor before retirement may provide a more accurate estimate and peace of mind.
“My hope is that they seek professional guidance before they pull the trigger,” Abts says.
HOW MUCH RETIREES SPEND ON AVERAGE
While every retiree will have unique income needs, considering the national average can help with planning. The Bureau of Labor Statistics tracks consumer spending through its consumer expenditure surveys. In 2023, the latest year for which data is available, U.S. households led by someone 65 or older spent an average of $64,326. However, most retiree households spend far less than this amount. The 2022 Spending in Retirement Survey by the Employee Benefit Research Institute polled nearly 2,000 American retirees between the ages of 62 and 75 and found the vast majority spend less than $4,000 a month.
TURN SAVINGS INTO CASHFLOW
Converting savings into income isn’t as simple as making withdrawals whenever money is needed. For one, retirees need to limit distributions to an appropriate amount to ensure they don’t run out of cash in retirement. One common rule of thumb is to take out 4% of savings each year. For someone with a $1 million nest egg, that would mean $40,000 in income annually. If a person had only saved $500,000, that would translate to $20,000 per year. Taxes are another significant factor to consider when converting savings into a regular cash flow. “How you take income in retirement will absolutely have an impact on the taxes you pay,” Abts says.
Many people have money in traditional 401(k) plans and IRAs. Withdrawals from these accounts are taxable, and at age 73, retirees must begin taking required minimum distributions, known as RMDs. These can substantially increase a retiree’s tax bill. Converting money from traditional to Roth accounts before retirement is one way to sidestep this problem since withdrawals from Roth accounts are tax-free. However, you must pay taxes at the time of the conversion.
WHERE TO GO FROM HERE
To read the full article, click here: https://money.usnews.com/money/retirement/articles/what-is-a-good-monthly-retirement-income
To see how Cornerstone can help you with financial planning and your retirement portfolio, call our office at (775)853-9033 or click here.
Based in Reno, NV, Cornerstone is for individuals and families looking to grow wealth, protect and preserve their life savings, and plan for the distribution of their estate in a tax-efficient manner through a tailored strategy. Schedule a time to discuss your financial goals with us.
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