Most people approaching retirement have accumulated several important numbers: their 401(k) and IRA balances, an estimated Social Security benefit, the value of their home, and perhaps a pension or other investments. Yet many still cannot answer the most important question:
"Can I afford to stop working and maintain the life I want?"
Some people continue working years longer than necessary because they have never calculated what retirement will actually require. Others retire with sufficient assets but remain afraid to spend them.
This article walks through a real-world example — a hypothetical Alabama couple — showing how to estimate a retirement number by accounting for Social Security timing, federal income taxes, and the type of accounts being used.
Begin With What You Want to Spend
Retirement planning should not start with an arbitrary portfolio target such as $1 million or $2 million. It should begin with the lifestyle that portfolio will need to support.
Your estimated annual retirement budget should include:
- Housing, property taxes and insurance
- Utilities and food
- Vehicles and transportation
- Health insurance and medical expenses
- Travel and entertainment
- Charitable giving
- Home repairs and major purchases
- Assistance for children or grandchildren
- Income taxes
- A reserve for unexpected expenses
Some expenses may decline after retirement — you may no longer make retirement contributions, pay payroll taxes, commute to work, or maintain a professional wardrobe. Other expenses may increase. Many retirees travel more during their early retirement years, and healthcare or long-term-care expenses may rise later.
The goal is not to predict every dollar perfectly. The goal is to establish a realistic annual spending number that can be tested.
An Example: David and Susan
Consider David and Susan, a hypothetical married couple living in Alabama. They are both 65 years old and would like to retire during 2026. They plan to begin Social Security at age 67 and want their resources to last through age 100. They estimate that they need $10,000 per month after federal income taxes, or $120,000 of annual spendable income.
Anticipated Social Security at Age 67
| David | $36,000 |
| Susan | $30,000 |
| Combined Social Security | $66,000 |
Retirement Planning Periods
| Age 65–66 (Social Security bridge) | 2 years |
| Age 67–100 (after Social Security) | 33 years |
| Total planning period | 35 years |
Period One: The Social Security Bridge
During the first two years, their investments must provide their entire living requirement. A common mistake would be to assume they need to withdraw exactly $120,000 — but traditional IRA and 401(k) distributions are generally taxable. Withdrawing $120,000 would leave them with less than $120,000 to spend.
Federal Tax Calculation — Before Social Security (2026)
| Gross traditional IRA withdrawal | $129,323 |
| Basic standard deduction | ($32,200) |
| Additional deduction — both spouses over 65 | ($3,300) |
| Enhanced senior deductions (2025–2028) | ($12,000) |
| Estimated taxable income | $81,823 |
2026 Federal Tax Brackets
| First $24,800 at 10% | $2,480 |
| Remaining $57,023 at 12% | $6,843 |
| Estimated federal income tax | $9,323 |
Cash-Flow Result
| Gross IRA withdrawal | $129,323 |
| Less estimated federal tax | ($9,323) |
| Spendable cash | $120,000 |
Two-year Social Security bridge: $129,323 × 2 years = $258,646
This is the first part of their retirement number.
Period Two: After Social Security Begins
At age 67, David and Susan begin receiving $66,000 per year from Social Security. They still want $120,000 after federal taxes, but they cannot simply subtract $66,000 from $120,000 and withdraw the remaining $54,000. That would ignore two important facts:
- Traditional IRA withdrawals are taxable.
- IRA withdrawals can cause part of their Social Security to become taxable.
How Social Security Is Taxed
For federal purposes, Social Security taxation is based on a provisional-income calculation that includes income other than Social Security, tax-exempt interest, and one-half of Social Security benefits. For married couples filing jointly, benefits can begin becoming taxable when this combined amount exceeds $32,000. When it exceeds $44,000, as much as 85% of the benefit may be included in taxable income.
This does not mean Social Security is taxed at an 85% rate — it means up to 85% of the benefit may be included in taxable income and then taxed at the couple's applicable federal rates.
Annual Cash Flow After Social Security
| Social Security benefits | $66,000 |
| Traditional IRA withdrawal | $60,928 |
| Total cash received | $126,928 |
Provisional Income Calculation
| Traditional IRA withdrawal | $60,928 |
| One-half of Social Security | $33,000 |
| Provisional income | $93,928 |
Based on that provisional income, approximately $48,439 of their $66,000 Social Security benefit would be included in federal taxable income.
Federal Income Calculation After Social Security
| Traditional IRA withdrawal | $60,928 |
| Taxable Social Security | $48,439 |
| Estimated adjusted gross income | $109,367 |
| Basic standard deduction | ($32,200) |
| Additional deduction — both spouses over 65 | ($3,300) |
| Enhanced senior deductions (2025–2028) | ($12,000) |
| Estimated taxable income | $61,867 |
2026 Federal Tax After Social Security
| First $24,800 at 10% | $2,480 |
| Remaining $37,067 at 12% | $4,448 |
| Estimated federal income tax | $6,928 |
Final Annual Cash Flow
| Social Security and IRA withdrawals | $126,928 |
| Less estimated federal tax | ($6,928) |
| Annual spendable income | $120,000 |
| Monthly spendable income | $10,000 |
33-year period after Social Security: $60,928 × 33 years ≈ $2,010,624
Their Back-of-the-Envelope Retirement Number
Combined Retirement Estimate
| Two-year bridge before Social Security | $258,646 |
| Thirty-three years after Social Security | $2,010,624 |
| Back-of-the-envelope retirement number | $2,269,270 |
Based on this simple method, David and Susan might initially conclude that they need approximately $2.27 million in retirement assets. However, that is not the end of the analysis.
Why the Straight Multiplication Is Not a Complete Retirement Plan
The $2.27 million calculation effectively assumes that the couple repeatedly withdraws today's estimated amount without giving meaningful credit for investment earnings. It also does not fully model:
- Annual inflation
- Changes in federal tax law
- Social Security cost-of-living adjustments
- Changes in spending as the couple ages
- Medicare premiums
- Required minimum distributions
- Roth conversions
- Market gains and losses
- Long-term-care costs
- The death of one spouse
- The desired inheritance or charitable gifts
It is a useful first number because it identifies the size of the problem. It is not precise enough by itself to justify retiring. The enhanced senior deduction used in this 2026 illustration is also currently scheduled to apply only for tax years 2025 through 2028 — a proper long-term projection should not assume this temporary deduction continues indefinitely.
Cross-Check the Result With a Withdrawal Rate
A commonly used retirement-planning cross-check is an initial portfolio withdrawal rate. After Social Security begins, David and Susan need approximately $60,928 annually from investments.
Withdrawal Rate Comparison
| Method | Approximate Target |
|---|---|
| 4% withdrawal cross-check plus bridge | $1.78 million |
| 3.5% withdrawal cross-check plus bridge | $2.00 million |
| Straight multiplication through age 100 | $2.27 million |
These are not three competing "correct answers." They are different ways of testing the plan. The withdrawal-rate calculations assume that much of the portfolio remains invested and generates returns. A complete projection should model investment growth, inflation, taxes, and yearly cash flow together.
The Type of Account Can Change the Answer
This example assumes every investment withdrawal comes from a traditional IRA. A couple with a combination of traditional retirement accounts, Roth accounts, and taxable investments may be able to manage annual taxable income more effectively.
Qualified Roth IRA distributions generally do not increase adjusted gross income. Strategic use of Roth funds could potentially:
- Reduce the taxable portion of Social Security
- Reduce federal income taxes
- Preserve income-based deductions
- Limit future required minimum distributions
- Reduce exposure to higher Medicare premiums
- Provide more spendable cash from the same gross withdrawal
The account with the highest balance is not necessarily the account that should be spent first.
Social Security Timing Also Changes the Number
David and Susan plan to delay Social Security until age 67, but that is not automatically the best choice for every couple. The appropriate decision depends on:
- Health and expected longevity
- The difference in spouses' earnings records
- Survivor-benefit planning
- Employment after retirement
- Other guaranteed income
- Investment assets
- Tax consequences
The Social Security decision should be coordinated with the investment-withdrawal and tax plan rather than considered separately.
An Important Alabama Consideration
Alabama exempts federal Social Security benefits from Alabama income tax. However, traditional IRA distributions and certain other forms of retirement income may remain subject to Alabama tax unless a specific exemption applies. Because this example calculates only federal income tax, an Alabama couple may need somewhat larger gross withdrawals to produce the same $120,000 of spendable cash. State income taxes should be added before making a final retirement decision.
The Number Should Be Reviewed Every Year
Retirement planning is not a calculation that should be completed once and placed in a drawer. Each year, retirees should compare:
- Actual spending with projected spending
- Current investment balances with expected balances
- Investment withdrawals with the planned withdrawal rate
- Social Security and pension income with projections
- Current taxes with expected taxes
- Changes in health, housing and family needs
The Better Question
Instead of asking: "Is $1 million enough?"
"How much do we want to spend after taxes, how much will Social Security and other reliable income provide, and how much must our investments supply?"
For David and Susan, the important numbers are $120,000 of desired annual spendable income, $66,000 of annual Social Security, and an initial planning range of approximately $1.78 million to $2.27 million. Those numbers provide a meaningful starting point for deciding whether they can retire.
Final Thought
Naming your retirement number can be empowering. It may show that you need to save more or work longer. It may also reveal that you have already accumulated enough and are continuing to work primarily because no one has helped you complete the calculation.
The purpose of retirement planning is not simply to avoid running out of money. It is to understand what your resources can support so you can make informed decisions about how — and when — you want to live the next stage of your life.
Source acknowledgment: This article was inspired by the general retirement-calculation framework discussed by Bec Wilson in "Here's how to work out how much you really need for retirement," published by The Sunday Times on August 4, 2026. The U.S. example, Social Security assumptions, federal tax calculations, analysis, and wording in this article were independently prepared by Barranco & Associates.
Disclaimer: This article is for general educational purposes and does not constitute individualized tax, legal, or investment advice. The example is hypothetical. Tax laws, deductions, Social Security benefits, and investment conditions may change. Readers should consult their CPA, financial adviser, and attorney before making retirement or investment decisions.