How Much Money The Average 65-Year-Old Retiree Should Spend From Their 401(k) Every Month

For many people, 65 is the sweet spot for retirement. It is a few years past the earliest age for Social Security eligibility, allowing for additional growth in retirement savings before beginning to withdraw. However, the average retiree may be surprised by the amount they can actually spend from that 401(k) every year. On average, individuals between the ages of 65 and 69 had a balance of $251,400 in their 401(k) accounts in Q4 2024, according to Fidelity. Following the 4% rule for retirement savings, this means the average retiree would withdraw $10,056 annually, or roughly $838 a month.

Unfortunately, $838 a month from a 401(k) will likely not be enough to cover all living expenses for an American retiree. In fact, this amount is far less than the average retirement income in the United States for a single person. As the costs of essentials like groceries continue to rise, and the price of housing remains relatively expensive, retirees are unable to solely rely on any singular source of retirement income. Instead, they must increasingly tap into multiple income streams during retirement in order to maintain a comfortable lifestyle.

While the 4% rule is a common drawdown strategy, it is far from the only one. In fact, some people choose alternatives due to its rigidity and inability to adjust to market conditions. For those reasons, some retirees may opt for a dynamic withdrawal strategy. Dynamic withdrawal strategies adjust how much retirees can take out each year based on the state of your portfolio and the market at large. This type of approach can provide up to 25-30% higher annual withdrawals, according to Thrive Retirement Specialists, than static withdrawal strategies. However, these strategies are harder to manage, and can still benefit from restrictions such as setting maximum withdrawal percentages each year.

Alternatively, deciding on a fixed dollar amount to withdraw each month can keep things more simple. This method can help retirees stick to a budget with predictable income. However it will take some upfront planning to ensure retirees don't liquidate too substantial of an amount of their holding and impact their future withdrawals. Alternatively, individual retirement accounts (IRAs) remain a popular retirement vehicle and can also be used to optimize withdrawals by deferring taxes, allowing more of your savings to stay invested. But retirees may want to avoid self-directed IRA to not bleed money from fees. By having both accounts, a retiree can choose whether to take taxable or tax-free withdrawals to minimize their tax obligations in a given year. It could also be worth tapping into Social Security at 65 to supplement retirement income despite not being eligible for full benefits.