Am I Ready to Retire? A Step-by-Step Retirement Readiness Guide
You are ready to retire when your savings, income, and spending plan can support you for life. This retirement readiness guide walks you through five clear steps to test that.
You will project whether your money lasts, maximize savings, check your net worth, plan withdrawals, and dodge timing risks. Each step links a free calculator so you can run your own numbers.
Step 1: Project whether your savings will last
Start by projecting whether your savings will last through retirement. This is the core test of retirement readiness. You need to know your expected balance at retirement and how long it can fund your spending.
A common starting point is the 4% guideline. It suggests withdrawing about 4% of your balance in year one, then adjusting for inflation. Run your own numbers with our retirement calculator to see if your projected balance covers your needs. The Department of Labor notes that retirees often need 70% to 90% of their pre-retirement income to keep their standard of living.
Step 2: Maximize your 401(k) before you stop working
Maximizing your 401(k) in your final working years can sharply boost your readiness. Every extra dollar saved now has years to grow before you retire.
For 2026, the IRS lets you contribute up to $24,500 to a 401(k). If you are 50 or older, you can add an $8,000 catch-up, for $32,500 total. See how these limits change your outcome with our 401k calculator. Always contribute at least enough to capture your full employer match. That match is free money you should not leave behind.
Step 3: Know your total net worth heading in
Your net worth is the clearest snapshot of your financial standing before retirement. It equals everything you own minus everything you owe.
Add up your retirement accounts, home equity, cash, and other assets. Then subtract debts like a mortgage, car loans, and credit cards. Our net worth calculator does the math for you in minutes. Knowing this number helps you spot gaps early, and it shows which assets you can actually draw on for income.
Step 4: Plan your withdrawals and the RMD rules at 73
A smart withdrawal plan decides which accounts you tap and when. The order affects your taxes and how long your money lasts.
The IRS also forces withdrawals at a certain age. You must begin required minimum distributions (RMDs) from traditional IRAs and 401(k)s in the year you turn 73. Your first RMD can wait until April 1 of the next year, but later ones are due each December 31. Roth IRAs have no RMDs during your lifetime. Estimate your required amount with our RMD calculator. Missing an RMD can trigger a steep penalty, so plan these withdrawals carefully.
Step 5: Watch the timing risks
Timing risks can quietly shrink a retirement that looks ready on paper. Four deserve close attention before you leave work.
First is your Social Security claiming age. With a full retirement age of 67, claiming at 62 cuts your monthly benefit by about 30%, while waiting until 70 raises it to 124%. Second is sequence-of-returns risk: poor market returns in your first few retirement years can do lasting damage. Third, withdrawing from most retirement accounts before age 59½ usually adds a 10% early-withdrawal penalty. Fourth is healthcare before Medicare starts at 65, since you must bridge that coverage gap yourself.
Frequently asked questions
How do I know if I am ready to retire?
You are ready to retire when your savings and guaranteed income can cover your expenses for life. Test your retirement readiness by projecting your balance, checking your net worth, and planning withdrawals. The Department of Labor suggests aiming for 70% to 90% of your pre-retirement income.
At what age are required minimum distributions required?
Required minimum distributions begin at age 73. You must take your first RMD from traditional IRAs and most workplace plans in the year you turn 73. You can delay that first withdrawal until April 1 of the following year. Roth IRAs do not require distributions during your lifetime.
What is the full retirement age for Social Security?
The full retirement age is 67 for anyone born in 1960 or later. Claiming at 62 reduces your monthly benefit by about 30%. Waiting until age 70 increases it to 124% of your full benefit. Your claiming age is one of the biggest retirement timing decisions.
How much can I contribute to my 401(k) in 2026?
You can contribute up to $24,500 to a 401(k) in 2026. If you are 50 or older, you can add an $8,000 catch-up for $32,500 total. Always contribute enough to capture your full employer match first.
What is sequence-of-returns risk?
Sequence-of-returns risk is the danger of poor investment returns early in retirement. Big losses in your first few years, combined with withdrawals, can permanently reduce how long your money lasts. The same average return in a different order of years can produce very different outcomes.
What happens if I withdraw retirement funds before 59½?
Withdrawing from most retirement accounts before age 59½ usually triggers a 10% early-withdrawal penalty plus income tax. Some exceptions apply, but the penalty can meaningfully cut your savings. Planning your withdrawal timing helps you avoid this cost.