Stop Asking 'Can I Retire?' and Ask This Question Instead

Many people want to know when they can retire, but it may be time to reframe the question.

Asking yourself what kind of retirement you can afford and what changes you must make to reach your savings goals can allow you to retire on your own turns without getting caught up on one specific number. Someone who wants to travel and spend on new hobbies will have different savings needs than someone open to downsizing.

Why 'can I retire?' is the wrong question

The "can I retire?" question often gravitates around a savings balance or a magic number, but there are often better ways to consider when and how you should retire. It requires first looking at your expenses. Healthcare, housing, debt and taxes impact how much money you need to have each month to retire. Social Security can cover some of these expenses, and a retirement savings portfolio can close any gaps.

The amount you have to withdraw each year depends on the size of that gap. If you receive $2,000 per month from Social Security and average $5,000 per month in expenses, you need to fill a $3,000 gap each month. That makes it easier to map out when you can retire based on that lifestyle. However, if you want a higher quality of life that involves $7,000 in monthly expenditures, you will need a larger nest egg.

This analysis makes it easier to determine how much you need to retire. The figure will be different for each person, and the right number for you also depends on factors such as whether you want to support family members or live in a high-cost area.

The other question to ask

Shifting this analysis from an arbitrary number to what retirement you can afford leads to more detailed planning. You get to assess what type of life you want and can act accordingly. You may opt to cancel subscriptions and downsize to retire faster or because you no longer need those expenses in your life.

Some people may realize that they need gig work or a part-time job in addition to Social Security. Those extra income sources can come with flexible hours and make it easier to maintain a higher-quality lifestyle in retirement.

This prep work will also help you determine the best time to take out Social Security. Claiming at full retirement age secures higher benefits, and you won’t have to worry about income-based withholding. But claiming benefits sooner (you can do so as early as age 62) means you won’t have to wait for that extra source of income. A lot of factors go into determining the best time to claim Social Security, but knowing the math behind your ideal retirement lifestyle can help.

Stress-test the plan before making the leap

It’s important to do a deep dive into your finances and what it takes to maintain your ideal retirement lifestyle before you actually retire. Aspiring retirees should consider several scenarios, such as what will happen to their plan if the market enters a correction early in retirement. Elevated inflation, rising healthcare costs and living into your 90s are some of the other events to consider.

Can your retirement plan withstand those scenarios, and how would you adjust? The 4% withdrawal rule has long been a rule of thumb in the retirement industry, but some may need to withdraw 5% while others can trim that figure to 3%.

Review your retirement plan and finances each year to ensure you are still on track. Life events — such as illness or supporting an adult child — can change and may require adjustments to your plan. Retirement planning lets you understand trade-offs clearly so you can feel confident when it’s time to walk away from your career.