The retirement homestretch starts with a solid financial plan

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In search of retirement income security.

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Are you ready for retirement? You’re in the homestretch when the kids have flown the coop, your mortgage has been paid down (or if you’re lucky, paid off in full), and you’re thinking a pullback from the labor force might be in your future.

If you can confidently put a check mark next to the eight items below, you’re well on your way toward a comfortable retirement.

That’s quite a retirement checklist, but it includes the ideal components of a retirement plan. Don’t have them all covered? You’re not alone.

Not surprisingly, outliving the nest egg is among the biggest concerns facing those 65 years and older, which is the fastest-growing population group in the U.S., according to the Census Bureau.

Consider this: The number of Americans older than 65 will jump more than 33% to a whopping 73 million by 2035. That’s up 57 million from 2021. And the life expectancy of a 65-year-old is just over 20 years, according to the Social Security Administration. Remember that’s the average, meaning half are expected to live even longer.

Social Security benefits are said to account for roughly 40% of a retiree’s income, according to the agency, which as of 2022 doles out $1,555 monthly for the average benefit. (Your benefit is based on a formula tied to your lifetime earnings if you retire at your full retirement age, which is 65 or older, depending on your date of birth.)

Let’s consider Lauren, a 50-year-old single woman who plans to retire at her full retirement age of 67. If she earned $70,000 per year in wages at retirement, assuming her effective tax rate is 20%, her net take-home pay at that time is about $56,000. Lauren can expect to get about $2,200 each month in Social Security benefits ($26,400 annually), according to SSA’s quick calculator. Ouch! Lauren is used to coming home with $56,000. With no other income streams, she’d be $29,600 short each year—if she wants to maintain her current lifestyle.

But suppose she doesn’t expect to need the entire salary in retirement. For example, the AARP estimates 85% of salary as a guideline to account for savings in commuting costs, clothing, and those lunches downtown. In that case, Lauren will need to come up with $21,200 annually to cover 85% of her current after-tax salary.

Can she swing that? Will that be enough to cover daily essentials, utilities, and housing costs? (Here’s where that well-thought out, detailed budget comes in handy.)

And don’t forget—retirement means extra downtime, which might be filled with travel, dinners with friends, bucket-list adventures, and family obligations such as gatherings and holidays. What about inflation? And then there are taxes. How much of Lauren’s nest egg is in tax-deferred IRAs and 401(k)s?

Will you have enough money to retire? Use the calculator in this article to punch in your current savings, when you plan to retire, and how long you expect your savings to last. Are you on track?

There are plenty of other calculators and counsel on hand to help you plan for retirement, but one place to start is using the 4% rule as a retirement guideline. It’s simple math: Add up all your investments in your 401(k) and/or a pension, your diversified investment portfolio, and that savings nest egg. Following the rule, you’d withdraw 4% in your first year of retirement. Each year thereafter, you’d withdraw the same percentage, plus extra to cover the cost of inflation.

According to Bill Bengen, the researcher who came up with the rule, following the 4% guideline should give you 90% certainty that your money will last 30 years in retirement. For Lauren, if she is planning to live off 85% of her old salary, her investments would have to total $21,200 / 4% = $530,000 when she retired.

But note: That’s just a starting point, a number to anchor to. It’s not a guarantee, and it’s not perfect.

For example, inflation can be a moving target. The Federal Reserve targets 2% annual inflation, but we’ve seen how that can be totally out of sync with what’s happening in the real world from year to year. Inflation spiked in the post-COVID, supply-chain-strained economy. And depending on your actual budget items, inflation can bite harder than the numbers suggest.

So, sure, start with a general guideline such as the 4% rule, but make sure you tailor it to your specific situation and expectations. And if you need to make a few tweaks, there are a few alternatives to the 4% rule out there.

How do you know if you’re on the right financial path to retirement? The soundest advice might be to over-plan. Save as much as you can when you can, and remember, it’s never too late to start saving and/or to catch up. You can dial back to a 3% rule. Or consider a retirement side-hustle or other “post-career” retirement job.

And if you’ve got some time on your side? Clear the decks of debt, consider health care coverage carefully, put that budget together, and be honest with yourself about what you can and cannot afford.

Because there’s little argument: You can’t afford to outlive your money.