Retirement Ready: What it Really Takes to Get There

When people think about retirement readiness, they often focus on numbers. Is one million enough? Two million? More?

It’s natural to worry that you won’t have enough money to retire. It’s also not quite the right question. The truth is, one number can’t tell you if you’re ready for retirement. What can help you decide if you are ready for retirement is focusing on the three pillars of retirement readiness.

The Three Pillars of Retirement Readiness

As you save for the future, it’s helpful to consider retirement readiness from three angles:

• Income replacement: How much of your current monthly income will you need in retirement and where will that money come from? You’ll likely collect Social Security, but you’ll also need to draw on your retirement plan and potentially other personal savings. Most people don’t need to replace their full salary, usually needing about 75%-85% of pre-retirement income. That figure could be higher, though, if you have a lot of travel or expensive projects ahead.
• Time horizon: When you retire matters a lot. The later you draw on Social Security, the higher your monthly payment. Retiring later also gives you more time to save, invest, and recover from market fluctuations. And it delays when you begin withdrawing, protecting your nest egg longer, although you will need to take required minimum distributions (RMDs) in your 70s. (The exact age depends on when you were born.)
• Savings behavior: If you’re consistently saving over time, you’re off to a good start. Next, check to make sure you’re taking full advantage of your employee benefits (especially if your company offers a savings match). Then consider whether you can save a little more. Bumping up your contribution even 1-2% can add up to a lot more retirement savings over time.

Have You Accounted for All Your Spending?

Many people don’t think about how their lives might change in their 60s, 70s, and 80s. Some people downsize their homes, putting more money in their pocket. But then there are health care costs to consider. Aging bodies often need more attention, and healthcare costs often rise at a rate higher than broad inflation trends.

You should also ask yourself lifestyle questions. Will more free time mean spending more to visit family, travel the world, or work on hobbies? Are you considering starting a second business that could require startup capital? Are you hoping to contribute to the down payment of a child’s home or to pay for college for your grandchildren? Spending more will mean you’ll need to save more.

Debt is also a factor. Will you still be paying off your house after you retire? Will you need to take out auto loans? Do you expect to draw on credit in other ways? Paying down debt before you retire can reduce your spending, and avoiding debt in retirement can help you stretch your dollars further.

Benchmarks That Actually Help

Rather than focusing on a total savings number, focus on your contribution rate. We generally encourage people to save between 10-15% of their income each year. (This includes employer contributions.) If 6% of your salary is going into your retirement plan, that’s good, but consider increasing your contribution rate each year. Can you comfortably get to 15%? Go for it! If 12% is your sweet spot, congratulations. Thanks to compound growth and assuming you have at least a decade to work with, you could have more than doubled what you saved for retirement!

Thinking about income replacement can also be helpful. Our retirement calculator can help you decide what percentage of your current income you’ll need in retirement and then calculate how much you’ll need to save. The calculator is a fun tool because you can adjust your retirement age, savings rate, and even expected returns to see what different scenarios might mean for you.

A helpful companion benchmark is the “4% rule,” which suggests withdrawing about 4% of your savings in your first year of retirement, and then adjusting that amount for inflation in the years that follow. This can give you a simple way to think about how your nest egg may support your income over time.

It’s About Progress, Not Perfection

You can’t expect retirement to be a fixed point in time or set dollar amount. Focus on progress. How can you save more? What will help you be more consistent?

A Fisher\SMB retirement specialist can help translate abstract numbers and dates into actionable steps toward retirement success. Their personalized guidance considers your situation and helps you work toward your goals. And when life throws you a curveball, they can help you make adjustments.

Check in on Your Readiness

If you haven’t talked to a Fisher\SMB specialist in a while, now is a great time to schedule a one-on-one meeting. Simply click here and pick a time that works best to review your goals, evaluate your savings, and find your balance.