How to Know If You Have Enough to Retire in 2028 -- a Simple Framework

Are you thinking about retiring in the next few years? If so, you must understand how to determine if you're really ready to leave the workforce and live without a paycheck.

Fortunately, there are only a few steps you must take to make an informed choice. If you're hoping 2028 will be your retirement year, here's what you should do.

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Estimate your income needs

Knowing how much you plan to spend is the first step to determining if you're ready to retire. Since 2028 is approaching fairly quickly, you should be able to make a detailed budget that estimates your costs.

Sit down, look at your current expenses and how they'll change in retirement, and add in any extra costs you'll need to pay as a retiree, like for Medicare or private health insurance if your employer is currently covering your costs.

Of course, costs go up over time due to inflation. So your budget should be a little bit higher in 2028. The Federal Reserve targets a 2% inflation rate, but inflation has been running a little higher. To be on the safe side, you may want to budget assuming an inflation rate closer to 2.5% to 3%.

Determine what your Social Security income will look like

Once you know your income, you have to figure out whether you have enough to cover your spending needs. For many people, Social Security is a key source of income. But you'll have to decide if that will be the case for you right away or if you plan to retire but not claim benefits immediately.

Think about how old you'll be in 2028 when it's time to retire, and whether you'll have reached or gone past your full retirement age yet. If you are going to be 70, then you'll have maxed out your Social Security benefits and will want to claim them. But if you're younger, you have a choice to make.

You can claim Social Security as young as 62, but claiming before FRA reduces your checks for life. You can wait until you've reached FRA to avoid early filing penalties, but then you'll miss out on delayed retirement credits. Or you can wait until 70. After you decide whether to start your checks in 2028 when you retire, sign in to your mySocialSecurity account for an estimate of how much money Social Security will provide you.

Calculate income from other sources

Finally, you must determine where your additional income will come from, because Social Security alone isn't enough to support you. Social Security only replaces about 40% of pre-retirement income, and you need more to maintain your standard of living.

Look at the current balance of your retirement plans, how much that amount will grow to, and how much you plan to contribute over the coming years until 2028. You can use an online calculator to estimate what your final 401(k) or other account balance is likely to be when your chosen retirement date comes.

Once you know your balance, follow the 4% rule to estimate the amount you can safely withdraw from investment accounts. There are problems with the 4% rule, including the risk that longer life expectancies and lower projected future returns may mean you need to be a bit more conservative with your withdrawal rate. But it's still good enough to give you a pretty clear idea of what your retirement income will look like.

Determine if you're retirement-ready

Once you have calculated your income from other sources, if any, plus your Social Security benefits, you can compare this to your income. If you'll have enough to easily cover your costs in 2028, then you can plan to retire. If not, you may need to adjust your retirement planning efforts to save a little more or to push back your preferred retirement date.

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