How to Know When You'll Be Able to Retire

Note: This video is part of Morningstar's 7 Days to Retirement Readiness week special report.

Christine Benz: Hi, I'm Christine Benz for Morningstar.com. Thanks to a long-running bull market, retirement portfolio balances are elevated, too. But determining if you're ready to retire requires you to go beyond your account balance. You'll also need to look at your anticipated in-retirement spending as well as any nonportfolio sources of income you'll be able to rely on.

The first question is, how much will you spend in retirement? You'll probably no longer be saving, but you may have new expenses, like premiums for supplemental health insurance. You may have heard that you should expect to replace 75% or 80% of your working income in retirement, but my advice is to go line item by line item within your budget to estimate where your expenses will go up and where they might go down.

Another key aspect of gauging retirement readiness is to determine how much income you'll be receiving from nonportfolio sources like pensions or Social Security. The more income you have from those sources, the less you'll have to withdraw from your portfolio. For example, say that you estimate your total annual income needs are $70,000, but you'll receive $32,000 in Social Security benefits per year. That means you'll need to withdraw $38,000 from your portfolio.

Gauging retirement readiness requires you to get your arms around a lot of different variables, and things get even more complicated if you're part of a married couple with separate career trajectories and investment accounts. Because determining whether you can actually retire is such an important decision, my advice is to get some help. Seek out the services of a qualified financial planner or advisor who can help you think holistically about your retirement.

Thank you for watching. I'm Christine Benz for Morningstar.com.