What Is Retirement Readiness?

The term retirement readiness refers to the state and degree of being ready for retirement. Retirement readiness requires being financially prepared for retirement. Individuals need discipline, clearly defined goals, and a plan in order to become ready for retirement. Some people may consult a financial professional in order to help them achieve their goals. People who are ready for retirement are generally on target to meet their future income goals so they can maintain and enjoy the same standard of living they have while working.

Key Takeaways

  • Retirement readiness is the state and degree of being ready for retirement.
  • Readiness requires discipline, clearly defined goals, and plans.
  • Individuals may seek out the help of a financial professional to help achieve their goals.
  • Being ready for retirement means you're generally on target to meet your income goals to maintain the same standard of living you have while working.
  • Starting a plan early can help you become retirement-ready without a sense of urgency or risk.

Understanding Retirement Readiness

As noted above, retirement readiness is the state of being prepared and ready for retirement. People who are ready for retirement have a clear plan and goals set out that they stick to in order to maintain the same way of life they have while they are in the workforce.

Retirement planning is a key element of retirement readiness. This is the process by which someone lays out their income and personal goals, as well as the steps they need to take in order to achieve them. This entails financial planning by choosing investments and savings vehicles that are suitable for retirement, such as:

Individuals may also consider setting up emergency funds and life insurance policies. People should also take care to plan for any debt they may have and ensure their assets are properly managed. Many people often seek out the help of a professional, such as a financial or investment advisor to help guide them to the point where they are retirement ready.

Although retirement readiness depends on each person's financial situation, many financial experts believe that retirees need between 80% to 90% of their pre-retirement income to be able to maintain their lifestyles and, more importantly, keep up with their living expenses. This means saving as much as 12 times their pre-retirement salaries.

Financial readiness is only one part of being prepared 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.

Nearly one-third of people are ready for retirement.

Special Considerations

Retirement readiness isn't always easy, In fact, it takes a lot of planning, hard work, and discipline. Individuals who aren't financially healthy may not be adequately prepared for retirement. Not having a plan and being overburdened by debt can also prevent you from reaching your retirement goals.

There are a few factors that you should consider if you want to be ready for retirement. We've listed just a few of the most common ones below.

Goals and Retirement Plans

Before you start planning and saving, you may want to note down some of your goals and plans. For instance:

  • At which age do you intend to retire?
  • Where will you live?
  • How much will you need in order to live every month?
  • Do you intend to work or volunteer during retirement?
  • Is travel a big part of your retirement plan?
  • Will you have dependents to care for after you stop working?
  • How will you account for emergency expenses?

The answers to some of these basic questions may help you shape your plan and show how ready you'll be when it comes time to retire. Of course, your priorities may change over time, but some of these questions will likely remain, such as where you'll live.

You can use the answers to these questions to help you plan a monthly and annual budget that you can stick to and use as a guide as you move closer to your ideal retirement age.

Age

The age at which you begin your retirement planning is very important, not to mention the age at which you intend to retire. Financial experts agree that the earlier you start planning (and saving), the better.

When you're younger, you have a greater tolerance for risk and you only need to invest a smaller amount of money to reach your goals. If you start planning when you're younger, you have a longer time horizon to invest your money and make your plans and map out your goals.

If you start planning and saving when you're older, you have less time you have for your nest egg to grow, so it's imperative that you start as soon as you can. This doesn't mean that you can't accomplish your goals. It just means that you have to sock away more money and curb your risk.

Income

One of the main questions you should ask yourself while planning is how you intend to support yourself during retirement. Most people will get Social Security, but the program may not help you achieve all your goals. The program increased the age when full benefits kick in from 65 to up to 70.

Most employers offer their workers retirement plans like 401(s) and ESOPs. Companies deduct money from your paycheck every month before your income is taxed and the funds are put into an investment that grows with time. Some employers even match their employees' contributions, which sweetens the pot.

You can also choose to invest your own money through IRAs, certificates of deposit (CDs), and savings accounts.

Example of Retirement Readiness

The Transamerica Center for Retirement studies conducts annual surveys of American workers and employers about their views of retirement benefits and security. The firm's 2020 survey found that retirement readiness is still a big concern for most people. As many as 52% of the respondents said they would retire after 65 or don't plan to retire at all.

As many as 70% of the people surveyed said they have a plan in place for retirement. Only 27% of these individuals, though, have a written plan. As many as 30% of responders said they didn't have a retirement plan in place at all.

The COVID-19 pandemic caused a shift in financial priorities for most people. In fact, about 33% of Americans had to dip into their retirement savings because of the pandemic. But more than half said they remain confident that they can retire confidently even with financial setbacks presented by the coronavirus.