“Can I retire?” is one of the most important financial questions you’ll ever ask. Here’s a practical framework to answer it honestly.
The Retirement Readiness Checklist
Work through each question to assess where you stand:
| Question | What You’re Checking |
|---|---|
| 1. Can your savings sustain 30 years of withdrawals? | The core number test |
| 2. Do you have healthcare covered until Medicare? | Often trips up early retirees |
| 3. Are your major debts paid off? | Simplifies cash flow |
| 4. Do you know your Social Security plan? | Timing dramatically affects income |
| 5. Have you stress-tested your plan? | What if markets drop 40% early? |
| 6. Do you have a spending budget you can live on? | Lifestyle fit |
| 7. Are you emotionally ready? | Often overlooked but real |
Test 1: The Core Number Test
Step 1: Calculate Your Annual Retirement Expenses
| Category | Monthly Estimate | Annual |
|---|---|---|
| Housing (mortgage/rent, taxes, insurance) | $ | $ |
| Food and groceries | $ | $ |
| Healthcare (premiums, out-of-pocket) | $ | $ |
| Transportation | $ | $ |
| Utilities | $ | $ |
| Travel and entertainment | $ | $ |
| Gifts and family support | $ | $ |
| Other | $ | $ |
| Total | $ |
Step 2: Subtract Guaranteed Income
| Source | Annual Amount |
|---|---|
| Social Security | $ |
| Pension | $ |
| Annuity income | $ |
| Rental income | $ |
| Part-time work (if planned) | $ |
| Total | $ |
Step 3: Calculate Savings Needed
(Annual Expenses − Guaranteed Income) × 25 = Required Savings
Examples:
| Annual Expenses | SS + Other Income | Annual Gap | Savings Needed |
|---|---|---|---|
| $40,000 | $18,000 | $22,000 | $550,000 |
| $50,000 | $22,000 | $28,000 | $700,000 |
| $60,000 | $25,000 | $35,000 | $875,000 |
| $70,000 | $28,000 | $42,000 | $1,050,000 |
| $80,000 | $30,000 | $50,000 | $1,250,000 |
| $100,000 | $35,000 | $65,000 | $1,625,000 |
If your current savings ≥ Required Savings: You likely pass the core test.
The 4% Withdrawal Rate
The 4% rule says you can withdraw 4% of your savings annually with a high likelihood it lasts 30 years (based on historical market returns).
| Savings | 4% Annual Withdrawal |
|---|---|
| $500,000 | $20,000/yr |
| $750,000 | $30,000/yr |
| $1,000,000 | $40,000/yr |
| $1,500,000 | $60,000/yr |
| $2,000,000 | $80,000/yr |
For a 40-year retirement (early retirees): Some planners use 3.5% to be safer.
Test 2: Healthcare Coverage
Healthcare is the most common surprise cost in retirement.
| Age at Retirement | Healthcare Challenge |
|---|---|
| Under 65 | Must find private coverage until Medicare |
| 65+ | Medicare begins (not free—budget $200-$600/month) |
Healthcare Costs Before Medicare (Under 65)
| Option | Monthly Cost (estimate) |
|---|---|
| Marketplace plan (ACA), age 60 | $700-$1,500+ |
| COBRA from employer | Often $600-$1,800 |
| Spouse’s employer plan | Varies |
| Retiree health benefit (rare) | Varies |
| HSA drawdown to cover costs | Depends on your balance |
Budget at least $12,000-$18,000/year for healthcare if retiring before 65. This must be included in your annual expenses calculation.
Medicare at 65
| Part | What It Covers | Monthly Premium (2026 avg) |
|---|---|---|
| Part A (hospital) | Inpatient hospital | Usually $0 (if 40+ work quarters) |
| Part B (medical) | Doctor visits, outpatient | ~$185 |
| Part D (prescription) | Medications | ~$40-$80 |
| Medigap supplement | Covers deductibles/co-pays | ~$100-$300 |
Total Medicare budget: $200-$600/month ($2,400-$7,200/year)
Test 3: Debt Situation
| Debt Type | Impact on Retirement Readiness |
|---|---|
| Mortgage paid off | Significantly lowers expenses |
| Mortgage remaining | Include payment in annual expenses |
| High-interest debt (credit cards) | Should be eliminated before retiring |
| Car loans | Pay off or budget for it |
| Student loans | Factor into expenses |
Carrying a mortgage into retirement is fine if it fits your budget. Just include it in your annual expense calculation. Many retirees pay mortgages without issue.
Test 4: Social Security Strategy
When you claim Social Security significantly changes your income:
| Claim Age | Benefit vs. Full Retirement Age |
|---|---|
| 62 (earliest) | ~25-30% less than FRA |
| 65 | ~6-7% less than FRA |
| 67 (Full Retirement Age) | 100% |
| 70 (maximum) | ~24% more than FRA |
Example: $2,000/month FRA Benefit
| Claim Age | Monthly Benefit | Annual | Lifetime at 85 |
|---|---|---|---|
| 62 | $1,400 | $16,800 | $369,600 |
| 67 | $2,000 | $24,000 | $432,000 |
| 70 | $2,480 | $29,760 | $446,400 |
Break-even analysis: Delaying from 62 to 70 takes ~12-14 years to break even on total dollars received. If you’re healthy and expect to live past 80, delaying usually pays.
Check your benefit: Visit ssa.gov → “my Social Security” to see your projected benefit at different ages.
Test 5: Stress Test Your Plan
Run your plan through these scenarios:
| Scenario | Does Your Plan Survive? |
|---|---|
| Market drops 30% in year 1 of retirement | Sequence-of-returns risk |
| Inflation averages 4% (not 3%) | Purchasing power erosion |
| You live to 95 (30+ year retirement) | Longevity risk |
| A major healthcare event costs $100,000 | Catastrophic health expense |
| You need long-term care at 80 | LTC costs $50,000-$100,000/year |
If your plan doesn’t survive these: Consider working 2-3 more years, reducing expenses, or building a larger buffer.
One-More-Year Effect
| Action | Benefit |
|---|---|
| Work 1 more year | +$23,500 in 401(k) contributions, 1 less year of withdrawals, larger SS benefit |
| Work 2 more years | Portfolio could be $50,000-$100,000 larger; SS jumps significantly |
| Delay SS from 67 to 70 | Benefit increases 24%; also can retire but delay claiming |
Test 6: Budget Reality Check
Can you actually live on your projected retirement income?
| Income vs. Expense Check | Status |
|---|---|
| Projected 4% withdrawal + SS + pension ≥ expected expenses | Ready |
| Gap between income and expenses | Need more savings or reduce expenses |
| Expenses unclear or unbudgeted | Build a detailed retirement budget first |
Tip: Try living on your projected retirement budget for 3-6 months while still working. It’s the best test of whether the numbers work in real life.
What “Can Retire” Actually Means by Age
| Retire At | Key Considerations |
|---|---|
| Under 55 | Very long time horizon; safer withdrawal rate of 3-3.5%; no access to 401(k) without penalty until 59½ |
| 55-59 | Rule of 55 lets you access 401(k) from current employer penalty-free; still no Medicare |
| 60-64 | Getting close to Medicare (65); Social Security available at 62 (reduced); can access most retirement accounts |
| 65-67 | Medicare kicks in; approaching full SS age; standard planning territory |
| 67+ | Full SS benefits; solid traditional retirement territory |
Rule of 55 (Early Retirees)
If you leave your job at 55 or later, you can withdraw from your current employer’s 401(k) penalty-free (still taxable). This only applies to the 401(k) at the job you’re leaving—not prior 401(k)s or IRAs.
Retirement Readiness Summary
| Test | Your Result |
|---|---|
| Savings ≥ 25× annual gap | Pass / Fail |
| Healthcare plan through 65 | Pass / Fail |
| High-interest debt cleared | Pass / Fail |
| SS strategy decided | Pass / Fail |
| Plan survives stress tests | Pass / Fail |
| Budget is realistic | Pass / Fail |
Pass all 6: You’re likely ready.
Pass 4-5: Close—address the gaps.
Pass 3 or fewer: Consider working longer or significant adjustments.
Frequently Asked Questions
Can I retire at 60 with $1 million?
Possibly, depending on your expenses. At 60 with $1M, you can withdraw ~$30,000-$35,000/year (3-3.5% for a 35-year retirement). Add your eventual Social Security. If your total spending is $50,000-$55,000/year, it may work—but you need healthcare coverage for 5 years before Medicare. Run detailed projections.
What if I run out of money in retirement?
Social Security (which you can’t outlive) provides a safety net. Most retirees also have options: return to part-time work, downsize housing, move to a lower cost-of-living area, or tap home equity. Proper planning minimizes this risk—but the income floor of Social Security means most Americans won’t be completely destitute.
Should I pay off my mortgage before retiring?
Not necessarily. If your mortgage rate is low (under 4-5%) and you have enough liquid savings to cover expenses, carrying the mortgage can make sense—especially if your retirement accounts are earning more than your mortgage rate. But paying it off reduces fixed monthly expenses and simplifies your budget. Both approaches can work.
What’s the biggest mistake people make when thinking they can retire?
Underestimating healthcare costs, not having a plan for the first year of market drops (sequence-of-returns risk), and forgetting about irregular expenses (home repairs, cars, weddings, gifts). Build a buffer into your budget.