In Short

Retirement readiness involves more than reaching a target savings number. Before stepping away from work, it’s important to evaluate income sustainability, tax exposure, healthcare planning, investment risk, and long-term legacy considerations. Coordinating these areas can help reduce uncertainty and support a smoother transition into retirement. To help you get a plan in place, here are seven questions you can ask yourself:

1. Am I Financially Ready to Retire?

While most people leave the workforce around the age of 66, there’s no set-in-stone deadline.¹ Just because you’re reaching the age of retirement doesn’t mean you have to give up a job that you love. By the same token, if you’ve always dreamed of retiring early, you might just need help making a plan. Regardless of your situation, don’t feel pressured to retire until you’re ready to make the transition.

2. How Much Income Will I Need Each Year in Retirement?

Your costs will highly depend on what you want to do with your retirement years. To help create a clearer picture, use your current cost of living as a baseline, and don’t forget to consider factors like inflation or lifestyle adjustments. It’s important to remember that you’ll likely have a lot more time on your hands once you’ve stopped working, so think about how you’ll it – what will your hobbies and other activities cost? As you start thinking about retirement, it’s critical to take into account all your sources of retirement income. This might include:

• Savings and retirement accounts.
• Investments.
• Supplemental income from life insurance.
• Social Security benefits.

To get a better picture of how confidently you could live off of these sources, compare this total retirement income with your intended spending habits.

3. How Much Will Healthcare Cost in Retirement?

Healthcare costs can quickly add up in retirement years – especially if you’re too young for Medicare, which you become eligible for at 65. You might be able to purchase health coverage through a previous employer with COBRA, or you can buy private insurance on your own. In addition to insurance costs, you’ll also want to consider long-term care expenses, as people 65 and older have a nearly 70% chance of needing these services, according to the Administration for Community Living.²

4. How Will Taxes Affect My Retirement Withdrawals?

Retirement withdrawals are taxed differently depending on the account type. Traditional 401(k) and IRA withdrawals are taxed as ordinary income. Roth IRA withdrawals are generally tax-free if eligibility rules are met. Taxable brokerage withdrawals may trigger capital gains taxes.
The order in which you withdraw funds determines your tax bracket, Medicare premiums, and how much of your Social Security benefit is taxable. Poor sequencing can permanently increase lifetime taxes. Beginning at age 73 under current law, most tax-deferred accounts require annual Required Minimum Distributions (RMDs). These withdrawals are taxable whether you need the income or not. Before retiring, you should evaluate:

• Your projected tax bracket in early retirement
• Whether Roth conversions make sense in lower-income years
• How withdrawal timing affects Medicare IRMAA thresholds
• How Social Security taxation interacts with other income

Retirement does not eliminate taxes. It shifts how and when they apply. Coordinated withdrawal planning can materially improve long-term outcomes.

5. How Long Will My Retirement Savings Last?

After spending most of your life accumulating wealth, retirement is the time to use it to achieve a reliable income stream. For many people, this might involve moving money from old 401(k) or 403(b) plans into an IRA with the help of a financial advisor. Then, you can either set up periodic transfers into a checking account or withdraw a lump sum if you need the extra money.

When building a plan for drawing on your retirement savings, be sure to consider important age thresholds for retirement account withdrawals and social security benefits. Currently, you must be 59 ½ or older to draw from your retirement account without paying an early withdrawal penalty and you can start claiming Social Security benefits at 62. Once you turn 73, you may have to make Required Minimum Distributions RMDs) from your tax-deferred retirement accounts every year.

6. Is Your Plan Financially Viable?

It’s crucial to think pragmatically about your retirement plan. Have you accounted for inflation and the potential tax consequences of drawing from your investments? It’s important to note that transfers from 401(k)s and traditional IRAs are taxed as ordinary income. If you’re under 59.5 years old, you’ll also incur a 10% penalty for any withdrawals.

7. When Should I Start Social Security?

You can claim Social Security as early as age 62. Claiming early permanently reduces your monthly benefit. Delaying benefits increases them by approximately 8% per year until age 70. The optimal claiming age depends on longevity, income needs, tax exposure, and spousal benefits. It is not purely an age decision. Claiming early may increase portfolio withdrawals and reduce lifetime guaranteed income. Delaying may increase long-term income stability and improve survivor benefits for a spouse. Social Security also affects taxation. Up to 85% of benefits may be taxable depending on total income. Claiming strategy should be coordinated with withdrawal sequencing and Medicare planning.

Frequently Asked Questions About Retirement Readiness

How do I know if I can retire comfortably?

You can retire comfortably when your projected income sources, including Social Security, retirement accounts, and investments, can sustain your expected expenses without excessive depletion risk. A formal retirement income projection provides the clearest answer.

Is $1 million enough to retire?

It depends on spending, longevity, taxes, and investment returns. For some households, $1 million may be sufficient. For others, particularly those with higher lifestyle expectations or healthcare needs, it may not be enough. Retirement readiness depends on income sustainability, not a fixed savings number.

Should I retire if the market is down?

Retiring during a market downturn increases sequence-of-returns risk, which can reduce long-term portfolio sustainability. A structured withdrawal plan and cash buffer can help mitigate this risk.

What happens to my 401(k) when I retire?

You may leave funds in your employer plan, roll them into an IRA, or begin withdrawals. Each option has different tax and investment implications.

This material is intended for informational/educational purposes only and should not be construed as tax, legal or investment advice, a solicitation, or a recommendation to buy or sell any security or investment product. Investments are subject to risk, including the loss of principal. Some investments are not suitable for all investors, and there is no guarantee that any investing goal will be met. Certain sections of this material may contain forward-looking statements. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is no guarantee of future results. Third-party links are provided to you as a courtesy. We make no representation as to the completeness or accuracy of information provided at these websites. Information on such sites, including third-party links contained within, should not be construed as an endorsement or adoption of any kind. Please consult with your financial professional and/or a legal or tax professional regarding your specific situation and before making any investing decisions.

Not associated with or endorsed by the Social Security Administration or any other government agency.

Endnotes

¹ “United States Retirement Age.” Trading Economics, February 2023.
https://tradingeconomics.com/united-states/retirement-age-men.

² “How Much Care Will You Need?” ACL Administration for Community Living, February 18, 2020.
https://acl.gov/ltc/basic-needs/how-much-care-will-you-need.