Here’s how to figure out when you’re ready to take the retirement leap.
Key Points
- Decide when you want to retire and what kinds of income will provide enough money to cover your financial demands.
- Most retirees require 80% of their pre-retirement income. But you can adjust your estimates based on your lifestyle.
- Your Social Security payments will be a part of your retirement income, but they normally can’t be your entire source.
When Can I Retire?
Anytime you want, you can retire. Still, it’s wise to approach your decision by considering what your finances will be like once you retire.
Keeping that in mind, here’s a guide to some of the key problems to bear in mind as you determine when you’ll be able to comfortably retire.
Will you have enough income after you retire?
This is the #1 question that will decide whether you are ready to retire. Contrary to common belief, you don’t need to go for a certain monetary amount in savings — say $1 million. The key issue is how much income you’ll have.
In other words, a person with a big monthly pension and nothing in the way of savings could be better off than someone with a few hundred thousand in the bank.
The typical American will require roughly 70%-80% of their pre-retirement income to maintain the same standard of living in retirement. This rule of thumb is an excellent starting point, but the percentage may be higher or lower based on your unique retirement vision.
When you retire, you may receive income from Social Security, other fixed-income sources such as pensions and annuities, and, of course, your savings. So the first step is to assess where your retirement income will come from. Do you have a 401 (k)? A regular or Roth IRA? Cash in a regular savings account?
When can you start collecting Social Security, and how much will you get?
4. Social Security is supposed to replace around 40% of a person’s income before retirement, but it may be significantly less for higher earners. Social Security alone will probably not be enough to sustain you, but it is surely a key component of the equation in the retirement program.
Without delving too far into the weeds, your 35 highest-earning years are used to compute your Social Security payments. The average payment for all retired workers will be $2,071 in 2026, and the highest benefit at full retirement age would be $4,152 per month, according to the Social Security Administration.
To get a fair sense of how much you may be able to earn from Social Security, check out your most recent Social Security statement by going into your mySocialSecurity account at www.ssa.gov. When “Can you get those benefit checks started? The official full retirement age is dependent on your birth year, but anybody in the U.S. eligible for a retirement benefit may start receiving it whenever they choose after age 62, according to the Social Security Administration (SSA).
But if you choose to begin receiving Social Security at any age other than your full retirement age, your benefits will be permanently increased or decreased to make up for it. If you claim Social Security at 62, you’ll get lower benefits for more years. But if you wait until 70 to claim, you’ll get bigger payouts for fewer years.
How much do you need in savings?
Here’s a quick calculation. Most retirement planners agree that you’ll need about 80% of your pre-retirement income to sustain the same quality of life after you retire, so:
- First, take your current family income (pre-tax) and multiply it by .8.
- Divide that sum by 12, and you’ll have a ballpark figure for your monthly income requirements in retirement. Leave this amount alone to make it easier, or change it higher or lower to suit your retirement goals. If you intend to travel the globe once you retire or take up a costly pastime, you may need to arrange for extra income.
- Then remove your projected Social Security payout and any pension income you anticipate.
- What you are left with is the amount of money that you will have to make each month from your savings. Multiply this by 12 to get out how much you should aim to remove from your savings each year.
There is a general rule of thumb that says you can safely expect to withdraw 4% of your savings in your first year of retirement and adjust this for inflation in subsequent years without worrying about running out of money. This guideline is not flawless, it is true, but it is a decent approximation of retirement preparedness.
To follow this formula, take the amount of retirement income you will require from your savings each year and increase it by 25. So, if you figure you’ll require $30,000 a year in retirement income from savings, you should be shooting for a $750,000 nest fund before you stop working.
When can you retire?
In the end, you’ll be able to retire comfortably when the income streams you produce — Social Security, your savings, and any other sources you may have — are adequate to maintain your preferred quality of life after you leave your employment.
There is no one-size-fits-all solution, of course. Many retirees aspire to explore the globe in retirement, while others are quite fine with living a simple (read: affordable) existence.
Whether you aren’t sure whether you’re on track for the retirement you want, it’s a good idea to see a financial planner who can analyze where you are and provide a savings and investment strategy to get you to where you want to be.
The $23,760 Social Security bonus most retirees completely overlook (plus 7 other costly retirement mistakes)
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