When Can I Retire? How to Know If You're Actually Ready

Gary had been counting down to 65 for years. That was the magic number — the age his father retired, the age his colleagues retired, the age he'd always assumed he'd stop working.

Six months before his 65th birthday, Gary sat down with a financial advisor to finalize his plans. The meeting didn't go as expected.

Gary had $380,000 in retirement savings and would receive $2,100 per month from Social Security. His pension had been eliminated in a corporate restructuring fifteen years earlier. His wife's Social Security would add another $900 per month. Together, their guaranteed income was $36,000 per year.

Their annual expenses, including a mortgage that wouldn't be paid off for eight more years, ran about $68,000.

"I assumed I was ready," Gary said. "I had savings, I had Social Security, I'd worked for 40 years. But when we looked at the actual numbers, I was $32,000 short every year. My savings would last maybe twelve years, and then what?"

Gary didn't retire at 65. He's still working at 68, building up savings, paying down the mortgage, and planning for a more secure exit in two or three more years. The delay isn't what he wanted, but it's better than running out of money at 77.

The equation that determines everything

Retirement readiness comes down to one question: Can your income cover your expenses for potentially 30 or more years?

The income side includes Social Security, pensions, sustainable withdrawals from savings, and any other reliable sources. The expense side includes everything you'll spend — housing, healthcare, food, transportation, travel, and all the rest.

If income exceeds expenses with margin for error, you can likely retire. If expenses exceed income, something has to change: work longer, save more, spend less, or some combination.

Gary's math was clear. His guaranteed income was $36,000. A sustainable 4% withdrawal from his $380,000 savings added $15,200. Total: $51,200. Against $68,000 in expenses, he faced a $16,800 annual shortfall — and that assumed his savings lasted forever at 4% withdrawals, which they wouldn't.

The math doesn't care about birthdays. It only cares about numbers.

Mapping your income sources

Social Security forms the foundation for most retirees. Your benefit depends on your 35 highest-earning years and when you claim. At 62, you receive a permanently reduced benefit — roughly 25-30% less than waiting until your Full Retirement Age. Delay until 70, and your benefit grows to about 76% more than the age-62 amount.

For married couples, spousal and survivor benefits add complexity. A lower-earning spouse can receive up to 50% of the higher earner's FRA benefit while both are alive. When one spouse dies, the survivor receives the higher of the two benefits — making the higher earner's claiming decision especially important.

Create an account at ssa.gov to see your projected benefits at different ages. This is real data based on your actual earnings history, not an estimate.

Pensions still exist for government employees, teachers, and some private-sector workers. If you have one, know the exact monthly amount, whether it adjusts for inflation, and what happens to it if you die before your spouse.

Retirement account withdrawals fill the gap between guaranteed income and spending needs. The sustainable withdrawal rate is typically 3-4% of your portfolio per year, adjusted for inflation. A $500,000 portfolio at 4% generates $20,000 annually. This isn't guaranteed income — markets fluctuate, and withdrawals during downturns can deplete savings faster than planned.

Other sources — part-time work, rental income, annuities, inheritance — round out the picture. Each has different reliability and tax treatment.

Understanding sustainable withdrawals

The classic "4% rule" suggests withdrawing 4% of your portfolio in year one, then adjusting for inflation annually. Historically, this approach succeeded about 95% of the time over 30-year periods.

But the rule has limitations worth understanding.

It doesn't account for taxes. A $40,000 withdrawal from a Traditional IRA isn't $40,000 in your pocket — federal and state taxes reduce your actual spending money.

It assumes rigid spending. Real retirees adjust when markets crash or unexpected expenses arise. The rule doesn't capture this flexibility.

It was designed for 30-year retirements. If you retire at 55, you might need money for 40+ years. A 3% or 3.5% withdrawal rate provides more safety over longer horizons.

Sequence of returns matters. A market crash early in retirement is far more damaging than one late in retirement. Withdrawing from a declining portfolio depletes capital quickly, leaving less to recover when markets improve.

Getting honest about expenses

Income questions are easier than expense questions. You know your Social Security estimate. You know your portfolio balance. But what will you actually spend?

Most retirees underestimate expenses when planning and then struggle when reality proves more expensive than their projections.

Start with your current spending, tracked honestly for several months. Then adjust for retirement realities.

Housing costs might decrease if your mortgage is paid off, but property taxes, insurance, and maintenance continue. If you're downsizing, factor in both the savings and the one-time costs of moving.

Healthcare often increases dramatically. Before Medicare at 65, individual coverage can run $500-1,500 per month per person. After Medicare, you'll still pay premiums, deductibles, co-pays, and uncovered services. Long-term care — the wild card — can cost $8,000-12,000 per month if needed.

Transportation typically decreases without commuting, but you'll still maintain and replace vehicles. Eventually, many retirees need alternatives to driving that cost money.

Discretionary spending varies by retirement phase. The "go-go years" (65-74) often see higher travel and leisure spending. The "slow-go years" (75-84) tend toward more modest activities. The "no-go years" (85+) shift spending toward healthcare and assistance.

Gary's $68,000 included a mortgage payment of $18,000 per year. In eight years, when the mortgage is paid off, his expenses drop to $50,000 — much closer to his projected income. Working those extra years changes the math fundamentally.

The healthcare bridge before 65

For those considering early retirement, healthcare coverage is often the biggest obstacle.

Employer-sponsored insurance disappears when you stop working. COBRA extends coverage temporarily but at full cost — often $1,500-2,500 per month for a couple. ACA marketplace plans vary widely based on income and location, with subsidies available for those below certain thresholds.

The ACA income game matters. Keep your modified adjusted gross income low enough, and substantial subsidies reduce premiums significantly. Exceed certain thresholds, and subsidies vanish. Careful management of Roth conversions, capital gains, and retirement account withdrawals can keep you in subsidy territory.

Some early retirees take part-time jobs specifically for health insurance, accepting lower pay in exchange for benefits. Others move to states with more favorable ACA markets. A few use health sharing ministries, which are cheaper but provide less comprehensive coverage.

The period from early retirement until Medicare at 65 requires a specific healthcare strategy. Retiring without one is financially dangerous.

Stress-testing your plan

Before pulling the trigger, test your plan against scenarios that would break it.

What if markets crash 30% in your first year of retirement? This happened in 2008-2009 and will happen again. Can you reduce spending? Do you have cash reserves to avoid selling stocks at the bottom? Is your portfolio allocated appropriately for your risk tolerance?

What if you face a $50,000 medical expense? Medicare doesn't cover everything. Long-term care isn't covered at all. Do you have emergency funds outside retirement accounts? Is your coverage adequate?

What if inflation runs 5% or higher for several years? Your expenses grow faster than expected. Does your portfolio include inflation protection? Does your income (Social Security, any pension COLAs) adjust with prices?

What if you live to 95? A 65-year-old has reasonable odds of reaching that age. Will your money last 30 years? Have you considered longevity insurance like delayed Social Security or annuities?

Gary's plan failed the stress test. His 12-year runway assumed everything went right. One bad sequence of returns, one health crisis, one unexpected expense — and he'd be in serious trouble in his late 70s with no way to recover.

The non-financial factors

Money enables retirement, but money alone doesn't make it successful.

Purpose and identity matter more than most people expect. Work provides structure, social connections, and a sense of contribution. Removing those without replacement creates a void. The happiest retirees have activities, communities, and goals that give their days meaning.

Relationship dynamics shift. If you're married, you'll spend far more time together than you have in decades. Some couples thrive; others discover they've grown apart. Discussing expectations and concerns before retirement prevents painful surprises after.

Health enables everything else. Retiring without addressing chronic conditions, fitness, and mental health sets you up for a retirement constrained by limitations you could have mitigated.

Location decisions become pressing. Do you stay near family? Move to a cheaper area? Pursue a climate you prefer? These choices interact with finances, relationships, and lifestyle in complex ways.

When you're ready — and when you're not

You're likely ready to retire when your sustainable income exceeds your expenses with margin for error, when healthcare coverage is secured until Medicare, when you've stress-tested against market crashes, inflation, and longevity, when you have purpose and activities beyond work, and when your spouse or partner is aligned on timing and vision.

You're probably not ready if there's a significant gap between income and expenses, if healthcare before 65 has no clear solution, if a moderate market decline would derail your plan, if you have no vision for how you'll spend your time, or if you and your partner disagree about retirement timing or lifestyle.

Gary wasn't ready at 65, despite assuming for decades that he would be. The numbers told a story his feelings had obscured.

Three more years of work will pay off his mortgage, add to his savings, delay his Social Security (increasing his benefit), and maintain his employer health insurance until Medicare kicks in. At 68 or 69, the math will work. At 65, it didn't.

"I was disappointed at first," Gary admits. "But now I see those years as buying my future security. I'd rather work a little longer than worry about money for the rest of my life."

Need help determining your retirement readiness? Connect with a retirement advisor who can analyze your complete financial picture and create a personalized plan.