Retirement Readiness Is More Than a Savings Benchmark

April 28, 2025 · Financial Forte Staff

Historical article: prepared retrospectively using information available as of April 28, 2025.

It is natural to want a simple answer to whether you have saved enough for retirement. A target based on age, salary or an account balance gives you something concrete to measure. The difficulty is that two households can reach the same number and face very different decisions.

Retirement readiness starts with what your money needs to do. Savings matter, but so do reliable income, spending, taxes, health costs and the years those resources may need to cover. A benchmark can prompt a useful review. It cannot tell you whether your particular retirement is adequately funded.

Begin with the income gap

Estimate the cost of the life you expect to lead, then compare it with income available without portfolio withdrawals. Use consistent figures. Comparing after-tax spending with a gross pension estimate can make the gap look smaller than it really is. Social Security estimates also need to reflect the claiming assumptions being considered.^[1]

Separate regular expenses from irregular ones. Groceries and utilities are easier to remember than replacing a roof, helping a family member or buying a vehicle. An annual average can help with planning, but an expense due next month still requires money next month.

Consider two hypothetical households with $600,000 in retirement investments. Assume the figures below are annual amounts after applicable taxes on their reliable income, but before taxes on any additional portfolio withdrawals. Household A expects $60,000 of spending and $48,000 of reliable income. Its initial gap is $12,000, or 2% of the portfolio.

Household B expects $72,000 of spending and $30,000 of reliable income. Its gap is $42,000, or 7% of the same portfolio balance. The difference is $30,000 of annual portfolio support, or $2,500 per month, despite identical savings.

Those percentages are descriptions of the first year's gap, not safe withdrawal recommendations. Taxes on distributions, future spending changes, investment results and longevity still need to be modeled. Household A is not automatically secure, and Household B is not automatically unable to retire. The example explains why the balance alone cannot answer the question.

Test what happens when assumptions change

A useful projection should let you change an assumption and see the consequence. What happens if retirement begins a year later? What if part-time income lasts only two years? What if travel spending is higher early on and healthcare spending rises later?

For Household B, reducing recurring spending by $6,000 would lower the illustrated gap from $42,000 to $36,000. That $500 monthly reduction is a meaningful change, but it still leaves a 6% initial gap before withdrawal taxes. A small adjustment should not be presented as solving a larger funding problem without checking the rest of the plan.

Another possibility is delaying retirement while continuing to save. That may reduce the number of years investments must support spending and may change benefit estimates. It also has a personal cost: time, health and work satisfaction matter. The best financial projection is not necessarily the best life choice if it assumes work the person cannot reasonably continue.

Investment assumptions deserve the same scrutiny. A plan built around a smooth annual return can conceal the difficulty of withdrawing during a market decline. Consider less favorable return sequences and the amount of spending that could realistically change. Diversification can spread risk, but it cannot guarantee that the portfolio will avoid losses.^[2]

Look beyond the household's first year together

Couples should review survivor income and spending, not simply divide the current budget in half. Some expenses may fall after one spouse dies, while housing, insurance and maintenance may remain substantial. Pension elections, Social Security rules and account ownership can affect the surviving spouse's resources.^[1]

Healthcare also needs its own timeline. Someone retiring before Medicare eligibility may need to arrange coverage for a period of years. Later coverage still involves premiums and potential out-of-pocket expenses. Long-term care creates a separate planning question that should not be treated as fully resolved by ordinary health insurance.^[3]

The purpose is not to predict every difficult event. It is to identify situations that could materially change the plan and decide which risks to retain, reduce or insure. Insurance has premiums, conditions and limitations; self-funding requires assets that remain available for that purpose.

Include the people who would need to carry out the plan. A carefully calculated projection is less useful if only one spouse knows where the accounts are or how monthly bills are paid. Organization and a shared understanding are part of readiness too.

Decide what would make you comfortable moving forward

A retirement decision usually combines financial capacity with personal comfort. One household may accept flexible travel spending in exchange for retiring sooner. Another may prefer another year of work to build a larger reserve. Neither preference can be inferred from a savings multiple.

Identify which expenses are essential, which are adjustable and which goals you would be reluctant to change. Then define how you would respond if results fall short. A planned spending review after a difficult year is more useful than an undefined promise to tighten the budget later.

Bring account statements, benefit estimates, debt payments, insurance information and a realistic spending summary to the discussion. Ask for the assumptions in plain language and request alternatives when the answer depends heavily on a single favorable estimate, including a version with less favorable returns and less flexible spending. Make sure any withdrawal recommendation considers account taxation and access rules, not only the total portfolio.^[4]

The decision becomes clearer when you can explain where income will come from, what it must cover and what you would change if circumstances shift. That is a more useful measure of readiness than reaching a number that was never designed around your household.

Related reading

• Living Longer Changes More Than Your Savings Target
• Measure Retirement Progress Against Your Own Plan

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Educational information, not personalized investment, tax, legal or benefits advice. Examples use hypothetical assumptions. Verify current rules and your circumstances before acting.

Sources

• [1] SSA Annual Statistical Supplement 2023: Program description — 2023 edition; SSA Annual Statistical Supplement 2023: Glossary — 2023 edition
• [2] SEC: Beginners’ Guide to Asset Allocation, Diversification, and Rebalancing — August 27, 2009
• [3] NAIC: A Shopper’s Guide to Long-Term Care Insurance — Revised 2019; date verified; CMS: Choosing a Medigap Policy — 2024 edition; CMS March2024 file and Arizona DIFI-hosted copy
• [4] IRS Publication 590-B: IRA distributions — March 19, 2025 cover