How to Calculate Whether You Can Afford to Retire in 2028

If you're thinking of retiring in 2028, you might already be picturing yourself having more free time and less stress. But now's the time to figure out whether your savings will be enough to support your lifestyle.

If your plans need some tweaking, you're better off discovering that this year, as opposed to three months before your planned workforce exit. So with that in mind, here's how to determine whether you can afford to retire in 2028.

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1. Estimate your monthly expenses

The first step in figuring out whether you're on track for a 2028 retirement is to understand how much you expect to spend each year. Don't assume your spending will shrink significantly in retirement, because that may not be the case.

While commuting costs and other work-related expenses might disappear, you could easily find yourself spending more on healthcare, travel, hobbies, and home maintenance as your property ages. So make a list of your anticipated retirement expenses and figure out what you're looking at spending on a monthly and annual basis.

2. Evaluate your retirement income sources

Once you retire, you may have several income streams available, from Social Security to savings. It's important to understand how much actual income you can access on an annual basis to make sure you're able to cover your spending needs.

With Social Security, that's easy. Just create an account at SSA.gov and access your most recent earnings statement. It should give you an estimate of your monthly Social Security benefit at different filing ages.

With regard to your retirement savings, you'll need to figure out what withdrawal rate you're comfortable with. If you have a fairly even split between stocks and bonds and are retiring at a pretty traditional age (for example, sometime in your 60s), you may feel comfortable using a 4% withdrawal rate.

Let's say you've saved $1.2 million. At 4%, your annual income from your IRA or 401(k) is roughly $48,000, not accounting for inflation adjustments.

If you'll also get $30,000 a year in Social Security, your total annual income is $78,000. If you expect to spend $6,000 a month, you're in a pretty good place, because your annual income can cover your anticipated spending plus give you a small buffer for unplanned bills.

3. Test your plan against future risks

Even if it seems like your retirement income streams will hold up, it's important to test those numbers against events like market downturns or periods of prolonged inflation.

If the stock market crashes 20% your first year of retirement, you may not be able to withdraw $48,000. You'll need to ask yourself if you're willing to spend less or work part-time temporarily to cope, and/or if you have enough cash to give yourself a period to wait for a market recovery.

If inflation remains elevated, meanwhile, you may need to reduce spending in discretionary categories like leisure to ensure that your basic needs, like food and utilities, are covered. You'll also want to make sure your IRA or 401(k) is invested to keep up with rising costs.

It's exciting to find yourself getting close to retirement, but it's important to go into that stage of life with confidence. That means having a grasp on your spending, an income strategy, and a backup plan in case hiccups arise.

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