Can I afford to retire? How do I know I'm ready?
You can retire when your annual portfolio withdrawal (4% of investments) plus Social Security plus any pension exceeds your annual expenses by a 10–20% margin. If you spend $70,000/year and have $1.5M invested + $24k Social Security at 67, your income ($60k + $24k = $84k) exceeds expenses with a 20% buffer — you're ready.
Formula
Ready if: (Portfolio × 0.04) + Social Security + Pension > Annual Expenses × 1.1 (10% safety margin)
Example
Portfolio: $1.8M. SS at 67: $32k/year. Pension: $0. Expenses: $85k/year. Income: $72k (4%) + $32k = $104k. Margin: 22% above expenses. Monte Carlo: 94% success over 30 years. Ready.
How it works in detail
The retirement readiness checklist: (1) Portfolio withdrawal + guaranteed income > expenses by 10%+, (2) Healthcare plan in place (ACA until 65, then Medicare), (3) Debt eliminated or manageable within budget, (4) Emergency fund remains (6 months expenses in cash), (5) Monte Carlo success rate ≥ 90%, (6) You've tested your retirement budget for 6+ months. The biggest mistake: underestimating healthcare costs (pre-Medicare can be $12,000–$25,000/year for a couple) and overestimating spending reduction (most retirees spend MORE in the first 5 years — travel, hobbies, home projects). The 'go-go, slow-go, no-go' model: spend more ages 60–70, less 70–80, least 80+.
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How much do I need to retire?
Multiply your annual spending by 25. If you spend $60,000/year, you need $1,500,000. This is the 4% rule from the Trinity Study (1998) — withdraw 4% annually with a 95%+ historical success rate over 30 years.
What is the 4% rule for retirement?
The 4% rule says you can withdraw 4% of your portfolio in year one of retirement, adjust for inflation each year, and have a 95%+ probability your money lasts 30 years. It comes from William Bengen's 1994 research, later confirmed by the Trinity Study (1998).
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