You may be in a position to retire when your guaranteed income plus sustainable portfolio withdrawals can reasonably fund your expected spending for 30 plus years after taxes. A useful starting framework is multiplying your annual portfolio withdrawal need by 25, but this rule of thumb is not a substitute for a year by year retirement income plan. The real answer requires modeling taxes, healthcare costs, sequence of returns risk, and longevity together. For most pre-retirees, the answer is closer than they think once they factor in Social Security and run a proper income projection.
Key Takeaways
- Retirement readiness is a calculation, not a feeling. A year by year retirement income plan helps determine whether you may be ready.
- The 25x rule (25 times annual portfolio withdrawals) is a useful starting framework, not a complete plan.
- Social Security adds $35,000 to $62,000 per year for most retirees, dramatically reducing what the portfolio has to provide.
- Many pre-retirees in their early 60s may be closer to retirement readiness than they think once Social Security and other guaranteed income are properly modeled.
- Being able to retire financially and being ready to retire emotionally are not the same thing.
How do you know if you can retire?
Three steps help indicate retirement readiness.
- Calculate your expected annual spending in retirement
- Subtract guaranteed income (Social Security, pension, annuities)
- Check whether your portfolio can sustainably fund the remaining gap
If your portfolio multiplied by 4 percent equals or exceeds the income gap, you may be financially positioned to retire. If not, you may need more savings, lower expenses, or both. The 4 percent figure is a starting reference, not a tested plan for your specific situation. A complete retirement income plan models taxes, healthcare, and sequence of returns risk together. See How Much Do You Need to Retire for the full calculation framework.
What is the 25x rule for retirement readiness?
The 25x rule says you need 25 times your annual portfolio withdrawal need saved before retiring. The rule is the inverse of the 4 percent rule.
Example. A couple needs $80,000 per year of income beyond Social Security. They will collect $50,000 per year combined from Social Security. The portfolio must produce $30,000 per year. Using the 25x rule, that requires $750,000 saved.
The rule is a useful starting point, not a precise answer. Taxes, healthcare costs, and sequence of returns risk can push the real number higher. A comprehensive retirement income plan addresses each of these variables together.
What if you’re not ready to retire yet?
Three options.
- Save more. Maximum 2026 401(k) contributions are $24,500 for those under 50 and $32,500 for those 50 and older. For ages 60 to 63, the super catch-up allows $35,750 total per the IRS.
- Delay retirement. Each year of delay shrinks the retirement timeline, allows more saving, and increases Social Security if claiming is also delayed.
- Lower retirement spending. Reducing expected retirement spending from $120,000 to $100,000 reduces the required portfolio by $500,000 at a 4 percent withdrawal rate.
Most pre-retirees use some combination of all three.
How does Social Security affect when you can retire?
Significantly. Per the Social Security Administration, maximum 2026 Social Security at full retirement age is $4,152 per month, or $49,824 per year per person.
A couple where both spouses claim Social Security at full retirement age can receive nearly $100,000 per year of inflation-adjusted lifetime income. A guaranteed income may potentially reduce the portfolio requirement.
For someone who would have needed $2.5 Million in portfolio savings to fund $100,000 per year, Social Security at $50,000 brings the requirement down to $1.25 Million.
Can you retire early at 55 or 60?
Yes, with three caveats:
- Social Security is not yet available, so the portfolio must fund the entire income need until at least age 62
- Medicare is not available until 65, so health insurance must be planned for the gap.
- Early withdrawal penalties may apply to retirement accounts before age 59 and a half (exceptions exist, including the Rule of 55 for 401(k) plans)
Most early retirees need a larger portfolio than traditional retirees because their retirement is longer and they have no Social Security or Medicare for years.
What if you have a pension?
A pension acts like Social Security for the purpose of retirement calculations. A guaranteed income may potentially reduce the portfolio requirement.
Example. A couple has $1.2 Million saved, expects $50,000 per year from Social Security at 67, and $30,000 per year from a pension. At 67, the potential income could be around $80,000. If their spending target is $110,000, the portfolio needs to produce $30,000 per year, which at 4 percent requires $750,000. They have $1.2 Million. On paper, they appear ready to retire, but the specifics depend on their tax situation, healthcare costs, and how the portfolio is allocated. A proper retirement income plan confirms whether the numbers actually work for their situation.
How do you bridge the gap between retiring and Medicare?
If you retire before 65, you need health insurance until Medicare starts. The main options are COBRA, ACA marketplace plans, spousal coverage, and private direct-pay plans.
The cost of bridging this gap is one of the largest unplanned expenses in early retirement budgets.
What’s the difference between being able to retire and being ready to retire?
Being able to retire is mathematical. The numbers work.
Being ready to retire is emotional and social. It includes:
- Knowing what you’ll do with your time
- Maintaining purpose and identity outside of work
- Having social connections that don’t depend on the workplace
- Comfort with spending savings instead of building them
Many financially ready retirees delay because they aren’t emotionally ready. Many emotionally ready retirees push too early because they don’t run the numbers. Both matter.
Common Mistakes
- Using a single retirement target number instead of modeling actual income gap
- Forgetting Social Security in the readiness calculation
- Underestimating healthcare costs in early retirement
- Confusing “I want to retire” with “I can retire”
- Failing to plan the income strategy alongside the savings strategy.
Frequently Asked Questions
Can I retire at 55 with $1 Million?
Possibly, depending on spending and how long the portfolio needs to last. With Social Security still seven years away and Medicare ten years away, $1 Million is tight for most lifestyles.
Can I retire at 62 with $1 Million?
For many couples with average Social Security benefits, this may be feasible. Combined with $30,000 to $50,000 of Social Security at 62 or later, $1 Million can support $70,000 to $90,000 of total income. Whether it works depends on specific spending, healthcare costs, and tax exposure, which is why a year by year retirement income plan is the best way to know for sure.
How much do I need to retire at 65?
Common benchmarks suggest 8 to 12 times annual income, which translates to $1.5 Million to $2.5 Million for a household earning $200,000. The exact number depends on spending, location, and Social Security.
Should I work part-time in retirement?
Even modest part-time income reduces portfolio withdrawal pressure significantly. $20,000 per year of part-time work is equivalent to $500,000 of additional savings at a 4 percent withdrawal rate.
What if I retire and run out of money?
Most plans never reach this point if monitored. The first sign of trouble usually appears years in advance, and adjustments (spending cuts, part-time work, Social Security claiming changes) can prevent depletion.
Ready to take action?
Speak to the team: → https://creativefinancialgrp.com/cfg-start-here/
About the Author
Kurt Supe is a CPA and Senior Partner at Creative Financial Group, an Indianapolis-based retirement planning firm. CFG has worked with retirees and pre-retirees for nearly 30 years, managing over 600M dollars in assets across 1,500 households. Kurt contributes to MarketWatch on retirement and tax planning topics.
This is not financial advice. Consult a qualified professional before making any financial decisions. Scenarios are hypothetical and for illustrative purposes only.