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Take the following scenario: Assume you were 56 and want to retire in 10 years with $550,000. Your savings may align with many others your age — the average American aged 65 to 74 has about $609,000 saved (1). But that doesn’t mean you’re looking at sufficient retirement income. Here are a few things to consider.
To put your savings in perspective, the new “magic number” Americans believe they’ll need to retire comfortably is $1.26 million, according to Northwestern Mutual (2), putting the $550,000 at just halfway to that target.
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If you apply the 4% rule for withdrawals to your $550,000 in savings, you get an annual income of about $22,000.
Of course, Social Security benefits will factor into your retirement income as well; the average benefit for retired workers today is approximately $2,005 per month, or $24,000 per year (3).
That means you’d have about $46,000 per year to work with. But as of 2023, the average annual spending among Americans 65 to 74 was closer to $65,150, according to the Federal Reserve Bank of St. Louis (4). In other words, a $46,000 annual income could leave you with a shortfall of about $19,000.
That said, there are steps you can take to reduce your tax burden, stretch your savings and live well in retirement on a $550,000 nest egg. Here are some strategies to consider.
Use retirement accounts that minimize your future tax burden
If you won’t have a high income in retirement, it’s that much more important to minimize your payments to the IRS and to make the most of any tax incentives, such as Trump’s recent One Big Beautiful Bill, which offers a $6,000 individual tax break to seniors between the 2025 and 2028 tax years.
Until you retire, you can also help yourself by contributing to a Roth IRA or 401(k) or doing a Roth conversion if you don’t currently have funds in one of these accounts. Doing so often depends on your taxable income now and anticipated taxable income in the future.
The nice thing about Roth IRA accounts is that withdrawals are not taxed in retirement, so you don’t have to reserve a portion of each distribution to satisfy an IRS bill at that time.
When it comes to picking an IRA, one of the easiest ways to invest is to open a self-directed trade account with SoFi. Their DIY approach allows you to invest with no commission fees, plus, for a limited time, you can get up to $1,000 in stock when you fund a new account.
With their rollover IRA, you can also move your money from a tax-qualified retirement account — such as an employer-sponsored 401(k) — into an IRA that you manage yourself. Typically, you’ll get a broader range of investment options than you would with an employer-sponsored account. Plus, your income keeps growing tax-deferred.
SoFi is designed to help you learn investing as you go, with real-time investing news, curated content and the data you need to make smart decisions about the stocks that matter most to you. Plus, get a 1% match on IRA rollovers and contributions with no minimum amount required.
Another option, although one that needs long-term planning, is to capitalize on the backdoor Roth IRA method. If you have a high net worth, this might be something you want to start thinking about for your retirement.
Roth IRAs don’t allow joint filers earning above $246,000, or individuals making more than $165,000 in modified adjusted gross income, to make contributions. But there’s no rule stopping you from contributing to a traditional IRA and then converting it into a Roth IRA.
If that sounds complicated — and it is — the experts at Range are here to help. They provide all-in-one white-glove wealth management services for high-earning professionals making at least $250,000 and households making over $300,000.
This includes navigating the complexities of the backdoor Roth IRA tax strategy and even the mega-backdoor Roth IRA method. But Range advisors can also offer proactive advice across your entire financial life, including alternative assets management — not just taxes.
And the best part? Unlike many white-glove investment services, Range offers a transparent, flat annual fee — no hidden costs or percentage-of-assets surprises — to help scale your wealth.
Of course, everyone’s situation is unique, and you want to balance using these accounts in the most tax-advantaged way. Make sure to consult with a qualified investment or tax professional before proceeding with a Roth conversion.
Read more: Warren Buffett used 8 solid, repeatable money rules to turn $9,800 into a $150B fortune. Start using them today to get rich (and stay rich)
Delay your Social Security claim for larger monthly benefits
If you were born in 1960 or later, your full retirement age for Social Security is 67. That’s the age when you can claim your monthly benefits without a reduction.
However, for each year you delay your Social Security claim until age 70, your benefits get an 8% boost. And that boost is a permanent one. This means that if you’re eligible for a monthly Social Security benefit of $2,005 at age 67 and you wait until 70 to file, you’ll be able to get approximately $2,486 per month instead — for life.
Larger Social Security benefits can take some of the pressure off of your nest egg (assuming you aren’t relying on it to postpone your Social Security benefits), allowing you to leave your savings intact longer so you can continue generating returns. These returns can also come in handy if your savings start to dwindle.
Another way to stretch your savings further? Cutting back on expenditures you don’t need — like monthly subscriptions you’ve forgotten about – and budgeting where you can.
If managing a budget feels overwhelming to you, apps like Rocket Money can simplify the process.
Rocket Money tracks and categorizes your expenses, providing a clear view of your cash, credit and investments in one place. It can even automatically uncover forgotten subscriptions, helping you cut unnecessary costs and save potentially hundreds annually.
For a small fee, the app can also negotiate lower rates on your monthly bills, making it a valuable tool for keeping your finances on track.
Move to a state with lower costs
When you’re working, you may have to live in a certain part of the country to get access to jobs in your field. In retirement, you have the freedom to move to any state you choose, which could help you lower your costs.
It could mean that housing is more affordable, or that life is more affordable because state income taxes are low or non-existent.
These U.S. states have no income tax:
- Alaska
- Florida
- Nevada
- New Hampshire
- South Dakota
- Tennessee
- Texas
- Wyoming
Washington also doesn’t have a state income tax, though residents may be subject to capital gains taxes. To be clear, a state with no income tax is not automatically a low-cost state. But you can use this list as a starting point.
If you plan on moving, make sure you’re getting the best mortgage rate possible. Tools like the Mortgage Research Center (MRC) can help you quickly compare rates and estimated monthly payments from multiple vetted lenders. Even if you don’t plan on moving, you might be able to get a better deal by staying where you are and refinancing your current rate.
After entering basic details — such as your zip code, property type, price range and annual income — you can view mortgage offers tailored to your needs and shop with confidence.
Consider downsizing
Whether you own or rent a home, downsizing is a great way to lower your monthly expenses. It’s also a good option if you’re looking to shed costs in retirement, but relocating isn’t an option.
As of 2022, U.S. homeowners aged 65 and over had a median $250,000 in home equity, according to the Joint Center for Housing Studies of Harvard University. Downsizing could be a great way to capture that equity and use it to pad your retirement savings. Or, you can use a HELOC to tap into the equity you have — without having to sell.
With home values higher than ever, you can make your home work harder for you by making the most of your equity. The average homeowner sits on roughly $311,000 in equity as of the third quarter of 2024, according to CoreLogic.
Having access to your home equity could help to cover unexpected expenses, pay substantial debt, fund a major purchase like a home renovation or supplement income from your retirement nest egg.
Rates on HELOCs and home equity loans are typically lower than APRs on credit cards and personal loans, making it an appealing option for homeowners with substantial equity.
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If you don’t own a home but are able to lower your monthly rental costs by moving to a smaller home, that could make a big difference, too. The added flexibility could buy you freedom to travel, seek new hobbies and generally have the kind of retirement you envisioned for yourself.
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Article sources
We rely only on vetted sources and credible third-party reporting. For details, see our editorial ethics and guidelines.
Federal Reserve (1); Northwestern Mutual (2); SSA (3); Federal Reserve Bank of St. Louis (4)
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.