What Is Retirement Readiness?
Retirement readiness is the state and/or degree of being ready for retirement. Retirement readiness typically refers to being financially prepared for retirement, or the degree to which an individual is on target to meet his or her retirement-income goals so that the standard of living enjoyed while working will be maintained after retirement.
Understanding Retirement Readiness
Although retirement readiness depends on each person's financial situation, many financial experts believe that retirees need between two-thirds and three-quarters of their pre-retirement income to maintain the same standard of living in retirement as they enjoyed when they were working.
Financial readiness is only one part of being ready for retirement. Being prepared mentally, socially, emotionally, and physically are also important; many experts recommend taking part in activities that will satisfy these aspects of your life. Knowing where you will live, when you will retire, and whether you will go back to work or school are all important aspects of financial readiness.
Elements of Readiness
The Transamerica Center for Retirement Studies outlines these elements of retirement readiness:
A clear vision of retirement including retirement dreams, expected retirement age, and any plans to continue working in retirement; s retirement strategy that incorporates savings needs, potential risks, and a backup plan if forced into retirement sooner than expected; retirement income including savings and investments, pension benefits, and government benefits; knowledge to make informed decisions about retirement investments, government benefits, and healthcare; a family understanding including an open dialogue about finances and agreement on any expectations of support.
Transamerica maintains that "power planners" will be best ready for retirement: "Retirement un-readiness is pervasive across demographic segments of the workforce including household income, age range, and gender. However, TCRS also discovered a group of American workers who are on the road to retirement readiness, and are a beacon of inspiration for others to follow. TCRS calls these people 'Power Planners.'"
Here's how TCRS breaks down this group:
21% of workers are Future Early Retirees—workers who plan to retire sooner than age 65. Strategists make up 12 percent of workers. Members of this group have a written retirement plan. 10 Percenters are the 22 percent of workers who save 10% or more of their annual salary through company-sponsored plans, such as a 401(k) plan. Those who are identified as the Knowledgeables, 31% of workers, believe they know what they should about retirement investing. 9% of workers fall into the category of Conversationalists. These workers frequently discuss saving, investing and planning for retirement with family and friends.