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Updated: March 21, 2025 How to

How to determine if you're financially fit to retire

By Jill Hibyan, F.L.Putnam Investment Management
Jill Hibyan of Fl Putnam
Photo / Courtesy of F.L.Putnam Investment Management
Jill Hibyan

Planning for retirement can seem like a daunting task. But it’s never too early to take stock of where you are financially and plan for your future. You may learn some tips and tricks to saving smarter, and the sooner you put those practices to work, the longer your money can work for you.

Understanding the nuances of what retirement will mean for you and your financial future should also help to ensure you don’t take more risks than you’re comfortable with.

A financial planner can help evaluate whether you are invested appropriately, whether your growth projections are sound and whether your anticipated spending could impact your retirement savings prematurely. 
 
Before you decide to enter this next chapter, here are four things you can do to assess whether you are financially prepared to retire.

Calculate your projected 'income'

For many people retirement income is a combination of Social Security (to find yours, create an account at ssa.gov/myaccount/) and supplemental income from savings, investments and/or retirement accounts. Some people may also factor in pension or annuity payments, while others may receive rental income.

A good rule of thumb is anticipating an income supplement of 4% annually from your overall portfolio of investable assets. Adhering to an annual spend rate during retirement may extend the life of your portfolio by 30 years (although there are no guarantees). Keep in mind that early withdrawal penalties may apply to certain retirement accounts when distributions are taken prior to statutory ages.

A part-time job, or seasonal or temporary work, can help reduce the spend rate of your retirement savings. Keep in mind that Social Security benefits may be taxed depending on individual income levels.

Determine how much you will spend  

Create a realistic retirement budget. Will your spending be higher or lower than during your working years? Do you have extensive travel plans? Will there be new lifestyle costs? Health care insurance can be a significant monthly cost between the years when you are no longer covered by an employer’s plan and not yet eligible for Medicare (currently age 65). Will you need to replace your vehicle? Unexpected housing repairs/maintenance? How is your health? Chronic illnesses can have an impact on how much money will be needed for retirement.

Also, if you rely on prescription drugs, keep in mind that not all medications are covered by Medicare. And drugs that are covered now, may not be in the future. Will you have elder care needs? Long-term care insurance can help cushion the cost, but it is expensive, and not for everyone. 

Assess your life expectancy 

This is a big wild card when it comes to retirement planning. It’s important to consider your current health and family history. Living an additional five to 10 years can have a significant impact on your plan.

Estimate your confidence level

I often tell clients that if we run 1,000 scenarios based on a variety of assumptions and projections regarding future market performance with varying returns for stocks and bonds, the goal is for 900 of those to leave at least $1 at the end of the designated time period. If so, this would hypothetically give a 90% probability of successfully not outliving your assets. For many people, an appropriate confidence level is somewhere between 75% and 90%.    

It’s important to run ongoing retirement scenario projections and revisit your plan frequently, specifically when there are changes to your lifestyle, income, assets and overall health.

Remaining flexible if conditions change and making adjustments to the models and projections should provide you with a reasonable level of confidence that your money will last.
 

About the author

Jill Hibyan is a private client advisor at F.L.Putnam Investment Management. She can be reached at jhibyan@flputnam.com.
 

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