Can You Afford to Retire?
Understand how much income you may need, where it will come from, how much you can withdraw, and whether your savings can support the years ahead.
Retirement planning answers a practical question: when your paycheck stops, how will you continue funding your life?
That means estimating what you may spend, identifying income from Social Security or pensions, determining what your investments need to provide, and evaluating how much you can reasonably withdraw. A useful plan may also account for taxes, healthcare, inflation, market declines, and the possibility of living longer than expected.
The goal is not a perfect forecast. It is knowing what your current resources may support, and what you can adjust while you still have time.
Confidence and preparation are not always the same
have not calculated what they may need
Nearly half of workers have not estimated how much they will need to live comfortably in retirement. Source: EBRI Retirement Confidence Survey, 2025.
feel confident about retirement
Only 24% describe themselves as very confident. Source: EBRI Retirement Confidence Survey, 2025.
find retirement preparation stressful
Nearly two-thirds say preparing for retirement causes stress. Source: EBRI Retirement Confidence Survey, 2025.
Taken together, these figures show that confidence does not always come from calculation. Estimating future expenses, income, and available assets can replace a vague concern with specific decisions.
Connect retirement timing with financial readiness
Choosing when you would like to retire is important, but age alone does not determine whether your plan is ready. A complete plan connects your preferred timing with the income and resources needed to support it.
Retirement timing
When
- When you would like to leave full-time work.
- When pensions or other benefits become available.
- When to consider Social Security and Medicare.
- Whether work continues in a different form.
Financial readiness
Whether
- What your desired lifestyle may cost.
- How much reliable income you expect.
- What your savings and investments may need to provide.
- How taxes, healthcare, inflation, and longevity affect the plan.
Your retirement date and financial readiness should be evaluated together. Changing either one can materially change the plan.
Four questions every retirement plan should answer
01 · Goals
What are you planning for?
Define the lifestyle, priorities, and approximate spending your retirement may require. A useful goal is specific enough to estimate and flexible enough to evolve.
02 · Position
Where do you stand today?
Review your savings, investments, debts, pension benefits, Social Security estimate, current contributions, and other available resources.
03 · Strategy
What needs to happen next?
Determine how much to save, how the money will be invested, which accounts to use, and how future income and taxes may be coordinated.
04 · Reviews
What has changed?
Revisit the plan as your goals, income, family, markets, tax rules, or expected retirement timing change.
In the EBRI survey, 63% of workers participating in a retirement plan had estimated what they might need for retirement, compared with 18% of workers without a plan.
Having an account does not complete the planning process, but it often creates a reason to begin asking the right questions.
The age milestones that shape a plan
- 50Age 50Standard catch-up contribution eligibility generally begins
- 59½Age 59½Standard threshold for avoiding the additional 10% federal tax on retirement-account withdrawals, although exceptions apply
- 62Age 62Earliest Social Security retirement-benefit eligibility
- 65Age 65Medicare eligibility generally begins
- 66-67Age 66-67Social Security full retirement age, depending on birth year
- 70Age 70Delayed Social Security retirement credits stop increasing
- 73 or 75Age 73 or 75Required minimum distributions generally begin, depending on birth year
Where retirement income comes from
Social Security
A monthly federal benefit based on your earnings and the age at which you claim. Waiting past your full retirement age increases it, up to a point. See SSA.gov.
Pensions, where available
A defined benefit from an employer can provide steady, predictable income for those who have one, though fewer plans offer them today.
Personal savings
Accounts such as 401(k)s and IRAs that you draw from over time. How much and in what order you withdraw can affect how long savings last.
The importance of Social Security, pensions, and personal savings varies considerably from one household to another. Start by estimating what Social Security and any pension may provide. Then compare those amounts with your expected expenses to determine what your savings and investments may need to supply.
A gap does not automatically mean the plan is off course. Saving more, working longer, adjusting spending, changing retirement timing, or coordinating benefits differently can all affect the result.
A gap does not mean you are behind. A plan can adjust across saving, timing, and spending, and there is no single number that fits everyone. What matters is building a plan around your own situation rather than a rule of thumb.
Your retirement plan should reflect your life, not only a rule of thumb
Social Security is one part of retirement income. Our Social Security guide explains how claiming decisions may affect the broader plan.
How the pieces of an income plan fit together
What is retirement planning?
- Retirement planning is the ongoing process of preparing your finances to support the life you want when employment income changes or ends. It coordinates saving, investing, retirement income, taxes, healthcare, and estate considerations, and it evolves as your circumstances change.
When should you start planning for retirement?
- There is no single right time to start, but time is one of the biggest factors in any plan, so beginning earlier tends to give you more flexibility. Planning is also valuable close to and during retirement, when decisions about income and timing carry the most weight. Wherever you are, a plan can be built from that point forward.
Building a retirement-income plan
- An income plan coordinates Social Security, pensions, employment income, and withdrawals from taxable, tax-deferred, and Roth accounts. It considers essential expenses, discretionary spending, taxes, inflation, healthcare, and how long the money may need to last. One common approach is to cover essential expenses with reliable income, such as Social Security or a pension, and to draw the rest from a portfolio.
How much can you withdraw, and the 4% rule
- The 4% rule is a general guideline based on historical research. It begins with withdrawing approximately 4% of a portfolio during the first retirement year and adjusting that amount for inflation thereafter. It is a starting point, not a promise. The appropriate withdrawal rate depends on retirement length, investment allocation, market returns, inflation, taxes, fees, and the ability to adjust spending. A detailed income plan may support a higher or lower initial withdrawal.
Why the order of returns matters (sequence-of-returns risk)
- While you are contributing and not taking withdrawals, the order of market returns is generally less consequential. Once withdrawals begin, poor returns early in retirement can have a greater effect, because money is leaving the portfolio while its value is declining. Two portfolios can experience similar average returns but produce different retirement outcomes depending on when gains, declines, and withdrawals occur. Guarding against this is a large part of why flexible spending and reliable income get so much attention.
Which accounts to draw from first
- There is no universal withdrawal order. A plan may coordinate taxable accounts, traditional retirement accounts, Roth accounts, required distributions, charitable giving, and Social Security differently from year to year. Some strategies use taxable accounts first, while others take proportional withdrawals or deliberately recognize taxable income during lower-income years. The appropriate sequence depends on the household's complete tax and income picture. This is general information, not tax advice; see IRS.gov and consider a tax professional.
Roth conversion timing
- Some people consider Roth conversions during lower-income years, including the period after employment ends but before Social Security and required minimum distributions begin. A conversion creates taxable income and may also affect Medicare premiums, Social Security taxation, and other income-based benefits. Whether it helps depends on the amount converted, available cash, current and future tax treatment, time horizon, and other planning considerations. This is not tax advice; see IRS.gov.
Required minimum distributions (RMDs)
- The IRS requires you to begin taking minimum distributions from most tax-deferred accounts at a set age, generally 73, and 75 for those born in 1960 or later. The amount is based on your account balance and IRS life-expectancy tables. Two details trip people up: delaying your first distribution to the following April 1 stacks two taxable distributions into one calendar year, and missing a required distribution carries an excise tax. Roth IRAs have no required distributions during the owner's lifetime, and beginning in 2024 Roth balances in workplace plans no longer require them. See IRS.gov for the current age and rules.
Healthcare, Medicare, and long-term care
- Healthcare costs vary widely and can represent a significant part of retirement spending. Retiring before age 65 may require separate health coverage until Medicare eligibility begins. Medicare does not generally cover ongoing custodial long-term care. Those expenses may need to be funded through personal resources, private insurance, Medicaid eligibility, or a combination of sources. See Medicare.gov for what is and is not covered.
Testing a plan: Monte Carlo and guardrails
- Monte Carlo analysis tests a plan across many possible market paths, reporting a probability of success. That number is best read as a prompt to review rather than a verdict, since real retirees adjust spending as markets move. Guardrails establish predetermined adjustments when results move outside an acceptable range. Both are tools for evaluating uncertainty, not guarantees of success.
FAQ
What is retirement planning?
Retirement planning is the ongoing process of preparing your finances for life after work. It covers how much to save, how to invest, how to turn savings into income, and how to account for Social Security, taxes, healthcare, and how long retirement may last.
When should I start planning for retirement?
There is no single right time to start, but time is one of the biggest factors in any plan, so beginning earlier tends to give a plan more flexibility. Planning is also valuable close to and during retirement, when decisions about income and timing matter most.
How much do I need to retire?
It depends on your expenses, income sources, and goals, so there is no single number that fits everyone. A plan built around your own situation is more useful than a rule of thumb.
What is the 4% rule, and is it still valid?
The 4% rule is a general guideline based on historical research: withdraw about 4% of the portfolio in the first retirement year, then adjust that amount for inflation. It is a starting point, not a promise. The appropriate rate depends on retirement length, investment allocation, market returns, inflation, taxes, fees, and the ability to adjust spending.
What is sequence-of-returns risk?
It is the risk that the order of investment returns, not just their average, hurts you once you are withdrawing. Poor returns early in retirement, combined with withdrawals, can do lasting damage even if long-run averages are fine. Two retirees with the same average returns can end up very differently depending on when the down years fell.
Which accounts should I draw from first in retirement?
It depends on your situation. There is no universal withdrawal order. Some strategies use taxable accounts first, others take proportional withdrawals across account types, and others deliberately recognize taxable income during lower-income years. Because accounts are taxed differently, the sequence can affect how much you keep. This is general information, not tax advice; see IRS.gov.
What are required minimum distributions (RMDs)?
RMDs are minimum amounts the IRS requires you to withdraw each year from most tax-deferred accounts once you reach a set age, generally 73, and 75 for those born in 1960 or later. Delaying your first distribution to the next April 1 can stack two into one year, and missing one carries an excise tax. Roth IRAs have no RMDs during the owner's lifetime. See IRS.gov.
When should I take Social Security?
Claiming earlier means a smaller monthly benefit, and waiting increases it, up to about age 70. The right timing depends on your health, other income, and goals, and it interacts with taxes and withdrawals. See SSA.gov for the figures that apply to you.
Does Medicare cover long-term care?
Generally no. Medicare does not cover most custodial long-term care, the day-to-day help many people need later in life. That cost is typically funded through savings, private long-term-care insurance, or Medicaid, and it is usually a separate line from ordinary healthcare costs. See Medicare.gov.
Sources and further reading
The ages, thresholds, and rules on this page come from the primary sources below. Because contribution limits, benefit amounts, and tax rules change, confirm the current figures directly with the IRS and the Social Security Administration before you act.
- EBRI and Greenwald Research - 2025 Retirement Confidence SurveySource for every confidence, stress, and calculation figure on this page (workers n=977).
- IRS - Required Minimum Distributions (RMDs)The official rule: the age RMDs begin, how amounts are figured, and the penalty for missing one.
- IRS - RMD Frequently Asked QuestionsPlain-language answers on the first-year April 1 rule, the still-working exception, and aggregating accounts.
- SEC (Investor.gov) - Required Minimum Distribution CalculatorA free, neutral government calculator for estimating a required minimum distribution.
- Congressional Research Service - RMDs and the SECURE 2.0 age changesNon-partisan summary of the required-distribution rules and how the beginning age shifted to 73 and 75.
- Social Security AdministrationOfficial benefit figures, full retirement age, and how the age you claim affects your monthly amount.
- Medicare.gov - Long-term careWhat Medicare does and does not cover for custodial long-term care.
Last updated September 2026. General education, not financial, tax, or legal advice. Parsonex does not make performance promises or recommend a particular course of action on this page.
Have questions about planning for retirement?
This material is for educational purposes only. It does not constitute investment, tax, or legal advice, and it is not a recommendation of any security or strategy. Individual circumstances vary. Consult a qualified professional before making financial decisions.
Social Security and taxes in retirement