What 'Retirement Ready' Actually Means (It's Simpler Than You Think)

Search "am I ready for retirement" and you'll find endless checklists. Have you maximized your 401(k)? Paid off your mortgage? Calculated your Social Security benefits? Created a healthcare plan? Updated your will? The list goes on.

These checklists aren't wrong, but they're overwhelming. They make retirement feel like a test you need to pass with 100% before you can move forward. And that's simply not how it works.

Here's what retirement readiness actually means: Can you afford the life you want with the money you'll have? That's it. That's the core question everything else supports.

Will your money last? This question has three parts you need to understand:

1. How much will you spend?

Forget the rule that says you'll need 70-80% of your pre-retirement income. That's too generic. Instead, think about your actual expenses in three buckets:

• Essentials: Housing, food, utilities, insurance, healthcare (including Medicare premiums and out-of-pocket costs)
• Lifestyle: Travel, hobbies, entertainment, gifts, dining out
• Unexpected: Home repairs, car replacement, family emergencies (plan for at least $10,000-15,000 annually)

Add these up. That's your number. For most Americans, this lands somewhere between $45,000 and $75,000 annually, but your life might look completely different.

2. Where will the money come from?

Most retirees have three potential income sources:

• Social Security: The average benefit is about $1,907 monthly ($22,884 annually) as of 2024, though your amount depends on your work history and when you claim
• Retirement savings: Your 401(k), IRA, Roth IRA, and other investment accounts
• Other income: Part-time work, rental property, pension (if you're lucky enough to have one), or annuities

The question isn't whether you have millions saved. It's whether these sources, combined, can cover your spending.

3. How long will it need to last?

If you retire at 65, plan for your money to last until at least 90. That's 25 years. Retire earlier? You'll need it to stretch even further. This is why the sustainability of your withdrawals matters more than the size of your nest egg.

Here's how to think about whether you're ready, using actual math instead of vague feelings:

Start with the 4% rule as a baseline

The 4% rule says you can withdraw 4% of your retirement savings in year one, then adjust that amount for inflation each year, with a reasonable expectation your money will last 30 years. It's not perfect, but it's a starting point.

Example: If you have $500,000 saved, the 4% rule suggests you could withdraw $20,000 in year one.

Add your guaranteed income

Let's say your Social Security benefit will be $2,000 monthly ($24,000 annually). Add that to your $20,000 from savings, and you have $44,000 to work with.

Does that cover your three spending buckets? If yes, you're likely ready. If no, you need to either save more, spend less, work longer to increase Social Security, or plan to work part-time in early retirement.

Account for taxes

Remember, not all retirement income is created equal tax-wise:

• Traditional 401(k) and IRA withdrawals are fully taxable as ordinary income
• Roth IRA withdrawals are tax-free (if you're 59½+ and the account is 5+ years old)
• Up to 85% of Social Security may be taxable depending on your total income
• Long-term capital gains from taxable brokerage accounts get preferential tax rates (0%, 15%, or 20%)

If most of your money is in traditional retirement accounts, factor in a 10-20% tax hit on withdrawals.

The other items on retirement checklists aren't unimportant. They just support the main question. Here's how to think about them:

Healthcare before Medicare

If you retire before 65, you'll need health insurance until Medicare kicks in. This might mean COBRA from your employer (expensive but comprehensive), an Affordable Care Act marketplace plan (possibly with subsidies), or coverage through a spouse. Budget $500-1,500 monthly per person.

Medicare at 65

You're automatically eligible for Medicare at 65. Part A (hospital) is usually free. Part B (doctors) costs $174.70+ monthly in 2024. Most people also want Part D (prescriptions) and either a Medigap or Medicare Advantage plan. Budget $200-400 monthly total.

Required Minimum Distributions (RMDs)

Starting at age 73, the IRS requires you to withdraw minimum amounts from traditional IRAs and 401(k)s annually. This can push you into higher tax brackets. Roth IRAs have no RMDs during your lifetime, which is why Roth conversions before retirement can be smart.

Estate planning basics

You need a will, healthcare power of attorney, and financial power of attorney. These don't affect whether you're financially ready to retire, but they protect you and your family. Most people can handle basic estate planning for $500-2,000 with an attorney.

Paying off debt

Carrying a mortgage into retirement isn't necessarily bad if the payment fits your budget and you're earning more on investments than you're paying in interest. But high-interest credit card debt? That needs to go before you retire.

Here's what most retirement readiness checklists miss: retirement isn't set in stone.

You can adjust your spending if the market drops. You can work part-time if you get bored or need extra cushion. You can delay Social Security from 62 to 70 to increase your benefit by up to 76%. You can downsize your home, relocate to a lower cost-of-living area, or adjust your lifestyle expectations.

Being retirement ready doesn't mean having every detail figured out forever. It means having a viable plan that you can adapt as circumstances change.

The people who struggle in retirement aren't usually those who retired with 90% of their checklist complete instead of 100%. They're people who retired without understanding whether their income would cover their expenses, or who had no flexibility when markets dropped or costs increased.

Answer these questions honestly:

• Do I know approximately how much I'll spend annually in retirement? (within $10,000)
• Do I know how much I'll receive from Social Security? (check your statement at ssa.gov)
• Can I calculate how much I can safely withdraw from my retirement accounts? (start with 4% of your total balance)
• Do these income sources cover my expected spending with some cushion?
• Do I have a plan for healthcare until Medicare, and understand Medicare costs?
• Do I have at least $20,000-30,000 in emergency savings outside my retirement accounts?
• Am I emotionally ready to leave my career and find new purpose?

If you answered yes to most of these, you're probably more ready than you think. If several are no, you know exactly what to focus on. No 50-item checklist needed.

Disclaimer: This article provides general educational information about retirement planning and is not intended as financial advice. We are not certified financial planners or advisors. Your personal financial situation is unique and may require professional guidance. Please consult with a qualified financial advisor, tax professional, or certified financial planner before making retirement decisions or significant financial changes.