The Retirement Milestone That Matters Most Isn't Your Age

"Instead, you can retire only when you have a big enough nest egg to support you. Your retirement readiness, in other words, is not based on the fact you hit a certain milestone birthday. The financial number you need to look at is your investment account balance so you will understand whether you have the income that you need to live on or whether you must keep working longer until you acquire the right amount of invested funds."

"The most precise way to decide whether you're ready to retire is to build a detailed budget and confirm that your savings can generate enough income to cover it. This method takes more work, but it offers the most accurate answer, especially if you're close to retirement and can estimate your spending with confidence. For example, if you expect to spend $60,000 per year and Social Security will provide $25,000, your nest egg needs to produce the remaining $35,000."

"Once you know the gap your savings must fill, multiply it by 25 if you plan to follow the 4 percent rule. This guideline suggests that withdrawing 4 percent of your portfolio in the first year of retirement, then adjusting each year for inflation, gives you a strong chance of not running out of money. Using that approach, needing $35,000 in annual income means you'd need about $875,000 saved. If you've reached that number, you're on track to retire."

Retirement readiness depends on investment account balances rather than reaching a target age. The most accurate approach is building a detailed budget and confirming that savings can generate enough income to cover expected expenses. Estimating expenses and guaranteed income sources, such as Social Security, reveals the annual gap that investments must fill. The 4 percent rule offers a simple guideline: multiply the annual savings gap by 25 to estimate a target nest egg. For example, a $35,000 annual gap implies roughly $875,000 in savings. If the target is unmet, continued work or additional savings are required.

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