Being a financial advisor means friends and family feel comfortable asking you their most personal money questions. A friend pulled me aside at coffee last week with a question we hear all the time: How do you know when you can actually afford to retire?

This friend is single and in her 60s. She works part-time and has some savings and investments but feels uncertain about the future. How does anyone plan for the coming years, she wondered, when end-of-life costs are impossible to guess? How do we know how much we’ll be spending, or even where we’ll be living?

This situation is one of the most common reasons people hire us as financial advisors; we can analyze your exact circumstances and model how different choices will impact your finances over time.

But for inquiring minds at the coffee shop, here’s how you can ballpark your readiness.

Retirement Readiness Quick(ish) Calculation:

Give it a try below. Keep reading on for the full breakdown of each step.

Retirement Readiness Calculator

A ballpark estimate based on your income, savings, and spending. Not a substitute for a financial plan.

Step 1

Estimated monthly spending

Include housing, utilities, groceries, insurance, dining, travel, and incidentals.

Step 2

Monthly Social Security benefit

Find your estimated benefit at ssa.gov. Enter 0 if not applicable.

Step 3

Other reliable monthly income

Pension, annuity, rental income, or part-time work. Use gross income before taxes.

Step 4

Total invested assets

Every dollar in IRAs, 401(k)s, 403(b)s, brokerage accounts. Exclude your emergency fund.

---

Calculate My Readiness

Investment income (4% rule / 12) —

Social Security —

Other income —

Total monthly income —

Estimated monthly spending —

Monthly surplus / shortfall —

This calculator uses a 4% annual withdrawal rate as a starting estimate. Your actual withdrawal rate may differ based on your timeline, tax situation, and plan. This is not financial advice.

Start over

1. Estimate your current monthly spending. Include fixed expenses like your rent/mortgage, utilities, insurance, and groceries, as well as incidentals like shopping, restaurants, and vacations. If you know your mortgage will be paid off or you anticipate specific changes, like increased healthcare or vacation spending, you should adjust your estimate.

2. Determine your Social Security benefit. Go to ssa.gov and look up your monthly benefit amount in the year you plan to retire or, if you know it, the year you will begin taking your benefit. (These years don’t need to be the same.) While there’s no universal best age to start taking your benefit, doing so later will translate into a larger monthly check.

3. Add other reliable income to determine your total monthly inflow. Think pension, annuity, rental income, or a part-time job. (Use your gross income before taxes or deductions.)

4. Add investment income:
   a. First, tally up your total invested assets. That means every dollar in an IRA, 401(k), 403(b), IAP, brokerage, or other investment or retirement account. Don’t include your emergency fund.
   b. Then, calculate your monthly withdrawals. Assume a withdrawal rate of 4%, a common starting place. Multiply your total invested assets by .04, then divide by 12. Example with $500,000 invested: $500,000 x 0.04 = $20,000. $20,000 / 12 = $1,666.67 monthly income from investments.

5. Determine your total income. Add together your Social Security benefit, other income, and investment income.

6. Calculate your potential shortfall. Subtract your total monthly spending from your total income. This amount is the shortfall you’ll need to cover your estimated expenses in retirement, hopefully with investment account withdrawals. Example: With a monthly spend of $5,000, a $1,200 monthly pension, and a Social Security benefit of $3,000, your total income is $4,200. Your shortfall is therefore $800, or $5,000 minus $4,200.

Nailing Down the Details

Ultimately, your retirement plan must consider what happens during a prolonged market decline, when to claim Social Security, healthcare costs, taxes, and many other factors.

The calculation above is a first step that can tell you whether retirement appears to be within reach and, perhaps more importantly, which questions deserve a closer look before you make the decision, such as:

• Will my mortgage be paid off before I retire?

• When should I take Social Security?

• What are my priorities for spending, saving, and gifting?

A financial advisor can hone your retirement spending projection, factor in major expenses like a home upgrade after retirement, and account for family medical history. We also help people understand what an appropriate withdrawal rate might be. (We’ve used 4% in the calculation above, but this percentage is only a general rule.)

Critically, an advisor can guide you through the foundational decision of when to take Social Security if you’re eligible. This decision impacts nearly every aspect of retirement planning.

What if I Don’t Have Enough?

Any amount you can save for retirement is helpful. Clients who reach their 80s with $40,000 saved have a cushion that can protect against unexpected expenses, and people with $100,000 may be able to pay for a year or more of assisted living. Mindset matters, too. People who throw up their hands in mid-life and don’t save for retirement because they run into a challenging health problem or unexpected layoff tend to be worse off than those who can recognize bad times are often temporary, and pick up saving what they can, when they can.

We work with a wide range of clients, from those who retire early to those who start thinking about retirement much later in life. Our commitment to meaningfully help people at all asset levels is one of the reasons that I work at Human Investing. Regardless of your financial circumstances, the same advice applies: Stay flexible in your mindset about money. Do what you can, forgive yourself for past missteps, and seize new opportunities as they arise.

---

Disclosure: Human Investing is an SEC-registered investment adviser. Registration does not imply a certain level of skill or training. This content is for informational and educational purposes only and does not constitute personalized investment advice or a recommendation. Past performance is not indicative of future results. All investments carry risk, including potential loss of principal. Readers should consult with a qualified professional regarding their specific financial situation.

---

Related Articles