A Retirement Readiness Financial Checklist

Use these steps to assess your financial ability to retire.


Unless retirement is forced on you by bad health or employer downsizing, you should be able to financially assess your retirement readiness. For some, that assessment is as simple as knowing when you will become eligible for a generous pension. For others, Social Security and personal savings will provide most of your retirement income.

[See 10 Tips for Retirement Overseas.]

If some of your retirement will be funded by Social Security with the rest being self-funded, a retirement readiness financial checklist may look like this.

1. Sources of guaranteed income. Before you can fully retire, you must have guaranteed income streams available to pay for your basic retirement living expenses. For those without a pension, this can mean a combination of Social Security, annuities, and income from risk-free investments.

2. Health care coverage. If you are 65 or older, you should be eligible for Medicare. You will also need to have resources to cover what Medicare does not: premiums, deductibles, and co-pays. With or without Medicare, health care and long-term care costs in retirement are significant, so you must be prepared for them.

[See How to Get a Guaranteed Return From Your 401(k).]

3. Retirement emergency fund. Retiring on fixed income streams alone is high risk. You need funds to handle extraordinary expenses like a new roof or replacement vehicle. Even if you have investments in a retirement plan, you don’t want to be forced by financial need to sell them in a down market.

4. Retirement income distribution plan. If you will use your own investments to generate retirement income, you need a plan for how and when to take distributions from the various components of your retirement nest egg.

5. Back-up plan. What will be your Plan B if something ruins Plan A, such as poor health, extreme inflation, or another severe market decline? For some, Plan B may be returning to the workforce. That’s a lousy back-up plan. Instead, you can prepare a worst-case scenario budget and assess whether your guaranteed income streams will cover it. A back-up plan may also include long-term care insurance and owning inflation protected assets in your retirement portfolio. This pre-retirement risk assessment is critical to avoiding a forced unretirement or dependency on others.

[See 3 Ways Your Home Can Help Fund Retirement.]

Some folks expect a financial adviser to tell them when they are ready to retire. I would still use a readiness checklist to review with the adviser because every retirement plan is personal and unique. Also, the checklist above covers only the financial aspects of retirement readiness. There are plenty of other issues to consider, including your emotional readiness.

Mark Patterson is an engineer, patent attorney, baby boomer, and author of The Failsafe Retirement System. He blogs on matters of personal finance and retirement planning at Tough Money Love and Go To Retirement.