
because they simply are not preparing for retirement now. -- Scott Cook

Scott Cook is right. According to the 2016 Retirement Confidence Survey, about 26% of respondents said they had less than $1,000 saved for retirement. A whopping 64% had saved less than $50,000. These people -- the majority of Americans -- certainly do not seem ready to retire, no matter how appealing the idea may be to them.

"Ready?" written on an asphalt road with feet at the bottom of the photo.

Image source: Getty Images.

If you're one of those people, know that it's not too late to significantly beef up your retirement savings and to set yourself up for more income in retirement. If you're not, and you've been effectively saving and investing for retirement, it still can be hard to know just when you're ready to retire. Here are five questions that can help you decide.

Are you carrying a lot of debt?

If you're saddled with significant credit card debt, you should not be thinking of retiring. In fact, you shouldn't be thinking of much beyond getting that debt paid off. Credit card companies tend to charge whopping interest rates on your debt. That can make it hard to pay it off, and easy to let your debt snowball into a bigger problem.

If you still owe a lot on your mortgage, think about whether you want to retire and live on a possibly lower income while still paying off your loan. Having a mortgage is not a deal-breaker for retirement, but many people prefer to have their homes paid off before retiring.

A clock that says "time to retire" instead of featuring numbers, with the hand approaching the word "retire."

Image source: Getty Images.

Have you figured out how much income you'll need?

Next, have you taken the time to estimate how much income you'll need in retirement? If not, do so. You'll need to make a detailed list of all your monthly, annual, and occasional expenses, and throw in a little extra for the unexpected. Be thorough, including housing expenses, insurance, taxes, food, transportation, healthcare, entertainment, and so on.

Don't assume that Social Security will be enough. On average, Social Security benefits are designed to replace about 40% of your income -- with the percentage being higher if you had lower-than-average earnings, and vice versa. So the average retiree will need to generate the other 60% (or less) through other means.

The "4% rule" is a handy tool that can help you estimate your needs. It says that you can withdraw 4% of your nest egg in your first year of retirement, adjusting future withdrawals for inflation. This withdrawal strategy assumes a portfolio 60% in stocks and 40% in bonds, and it's designed to make your money last through 30 years of retirement.

Here's an illustration of how it works: Imagine that you've saved $500,000 by the time you retire. In your first year of retirement, you can withdraw 4%, or $20,000. In year two, you'll need to adjust that rate by inflation. Let's say that inflation over the past year was at its long-term historic rate of 3%. You'll now multiply your $20,000 withdrawal by 1.03 and you'll get your second year's withdrawal amount: $20,600. The following year, if inflation is still around 3%, you'll multiply that by 1.03 and get your next withdrawal amount, $21,218.

Once you know how much income you'll need in retirement, you can flip the 4% rule around to see how much you'll have to accumulate in the first place. Imagine, for example, that you'd like to start retirement with total annual income of $55,000 and you expect to collect $25,000 from Social Security. That leaves $30,000 in income that you'll need to generate on your own. If you assume that $30,000 is 4% of your nest egg, then you can multiply $30,000 by 25 in order to arrive at how large your nest egg will need to be: $750,000. (Why 25? Because one divided by 0.04 is 25.)

Three eggs, with the words "Roth," IRA," and "401k" on them, sitting on a bunch of dollar bills.

Image source: Getty Images.

Can you generate the income you need?

Next, figure out how you'll generate your needed income -- specifically, how much income you can count on from which source. Social Security will be an important contributor to your retirement income. The average monthly retirement benefit was recently $1,363, which totals $16,356 per year. If your earnings have been above average, though, you'll collect more than that -- up to the maximum monthly Social Security benefit for those retiring at their full retirement age, which was recently $2,687. (That's about $32,000 for the whole year.) There are some ways to increase your Social Security benefits, too.

Do you have a pension? If so, great. If not, you might look into buying an immediate annuity (as opposed to a variable or indexed annuity), to provide relatively guaranteed income. You may be surprised at how much income you can buy through an annuity. Here's the kind of income that various people might be able to secure in the form of an immediate fixed annuity in the current economic environment:



Monthly Income

Annual Income Equivalent

65-year-old man




70-year-old man




70-year-old woman




65-year-old couple




70-year-old couple




75-year-old couple




Source: immediateannuities.com.

Dividend-paying stocks can be another great source of income. A portfolio with $300,000 invested in dividend payers and an average yield of 3.5% will generate $10,500 per year, with that sum likely rising over time as the underlying companies increase their payouts.

A stethoscope sitting on hundred-dollar bills.

Image source: Getty Images.

How will you tend to your health in retirement?

Be sure to have a healthcare plan for retirement, too. If you retire at or after age 65, your plan will likely involve Medicare. If not, look into how you'll get coverage. The Affordable Care Act and the health insurance exchanges it ushered in is one option, though it's been under attack and its future is uncertain. Some people opt to keep working until they can get on Medicare.

Even with Medicare, you'll still have out-of-pocket expenses, and they can be hefty. Fidelity Investments has estimated that a 65-year-old couple retiring today will spend, on average, a total of $260,000 out of pocket on healthcare -- and long-term care can add another $130,000 to the total. That $260,000 is an average, of course -- meaning you might spend less, or more.

How will you spend your time in retirement?

Finally, give some thought to how you'll spend your days in retirement. Many people look forward to being retired, only to find themselves bored, restless, or lonely. The routine of working is more important to some of us than we realize. Brace yourself for that, and consider how you might deal with it -- maybe by getting a part-time job, or taking up new hobbies. Working a little on the side, perhaps by tutoring or selling crafts, can add to your retirement income and help your nest egg last longer.

Don't retire until you're really ready to -- with enough money socked away, with a plan for how you'll generate enough income and take care of your health, and with an idea of how you'll spend your work-free time.