Can You Afford to Retire? Here's What It Actually Costs

Most Americans have no idea if they can afford to retire. A 2023 Federal Reserve study found that 28% of non-retired adults have zero retirement savings. Even those who do save often guess wildly at the number they need.

The real question is not "Can I retire?" but "What will my life cost when I stop working?" The answer determines everything: when you leave your job, whether you can keep your house, if you'll outlive your money.

The Real Cost of Not Working

Start with your current monthly spending. Write down rent or mortgage, utilities, groceries, insurance, car payments, medical costs. Add everything you actually spend, not what you wish you spent.

Now adjust for retirement. Some costs drop: no commute, no work wardrobe, no payroll taxes. Others spike: healthcare before Medicare kicks in at 65 can run $700-$1,500 per month per person for decent coverage. If you're 60 and planning to retire, budget for five years of private insurance premiums.

Property taxes do not care that you retired. Neither does your mortgage if you still have one. A 2024 study by the Employee Benefit Research Institute found that the median household headed by someone 65-74 spends roughly $50,000 per year. That is $4,166 per month, every month, for the rest of your life.

How Much You Need Saved

Financial advisors use the "4% rule" as a rough starting point: withdraw 4% of your total retirement savings in year one, then adjust that dollar amount for inflation each year after. If you have $500,000 saved, you can safely pull $20,000 per year without running out of money for 30 years.

That means to fund $50,000 in annual expenses from savings alone, you need $1.25 million. Most people do not have that. The median retirement account balance for Americans aged 65-74 is just $200,000.

Social Security fills part of the gap. The average monthly benefit in 2024 is $1,907, or about $22,900 per year. If you claim at your full retirement age (66 or 67 depending on birth year), you get 100% of your calculated benefit. Claim at 62, and you permanently lock in a 30% reduction. Wait until 70, and your benefit increases by 8% per year past full retirement age.

Do the math with your actual numbers. If you need $4,000 per month and Social Security pays $1,900, you must cover the remaining $2,100 from savings. That is $25,200 per year. Using the 4% rule, you need $630,000 saved.

What Happens If You Are Behind

You have three options: save more, spend less in retirement, or work longer. Most people need to do all three.

If you are 55 with $100,000 saved and can contribute $1,000 per month until 67, you will have roughly $340,000 at retirement (assuming 7% annual returns). Add Social Security, and you can fund a modest lifestyle. Cut that monthly contribution to $500, and you fall short.

Working even two extra years makes a dramatic difference. You contribute more, your existing savings grow longer, and you delay drawing down those accounts. Plus, every year you wait past 62 to claim Social Security increases your lifetime benefit.

Some people retire early by cutting expenses drastically. Move to a lower cost-of-living area. Downsize your home. Eliminate a car. If you can live on $2,500 per month instead of $4,000, your savings stretch much further.

Catch-Up Contributions Help

Once you hit 50, the IRS lets you contribute extra to retirement accounts. In 2024, you can put up to $30,500 into a 401(k) if your employer offers one—that is $7,500 more than the standard limit. IRAs allow an extra $1,000 for people 50 and older.

If your employer matches contributions, contribute at least enough to get the full match. It is free money. A typical match is 50% of your contribution up to 6% of your salary. On a $60,000 salary, contributing $3,600 per year (6%) means your employer adds another $1,800.

Healthcare Is the Wild Card

Medicare starts at 65, but it does not cover everything. Part B premiums run $174.70 per month for most people in 2024. You still pay for prescriptions unless you buy Part D coverage (another $40-$80 per month). Dental and vision are not covered at all.

A couple retiring at 65 can expect to spend $315,000 on healthcare throughout retirement, according to Fidelity's 2023 estimate. That does not include long-term care, which Medicare largely does not cover. A year in a nursing home averages $108,000.

If you retire before 65, budget for private insurance. COBRA lets you keep your employer's plan for 18 months, but you pay the full premium,often $1,500+ per month for a family. After that, you buy coverage through the ACA marketplace. Subsidies help if your income is low enough, but early retirees with significant retirement account withdrawals may not qualify.

Debt in Retirement Is Dangerous

You cannot afford to carry debt into retirement. Credit card interest at 22% will devour a fixed income. Car payments and personal loans tie up money you need for living expenses.

The one exception: a low-rate mortgage you can comfortably afford. Some retirees keep a mortgage if the interest rate is low and they would rather invest their money than pay off the house. That works only if you have substantial savings and a solid plan.

If you are 60 and drowning in debt, your options narrow. You cannot work forever, but retiring with $50,000 in credit card debt is financial suicide. Debt settlement might cut your balance by 40-60%, but it wrecks your credit for years. Bankruptcy erases most unsecured debt and lets you start retirement with a clean slate.

A Chapter 7 bankruptcy typically takes four months and costs $300-$400 in court fees if you file without an attorney. Most retirement accounts are protected in bankruptcy, so you do not lose your 401(k) or IRA. Social Security income cannot be garnished by credit card companies, but wage garnishment can take up to 25% of your paycheck if you are still working.

If debt is keeping you from retiring, check your bankruptcy eligibility here. The sooner you address it, the more options you have.

You Do Not Have to Stop Working Completely

Full retirement is not the only option. Many people work part-time in their 60s and 70s, either because they need the income or because they want something to do. A $20,000 annual side income turns a shaky retirement into a comfortable one.

If you claim Social Security before full retirement age and continue working, your benefits may be temporarily reduced if you earn above a certain threshold ($22,320 in 2024). Once you reach full retirement age, there is no earnings limit. You can make as much as you want without affecting your Social Security check.

Part-time work also delays drawing down retirement accounts, which means your savings last longer. Even working three years past your planned retirement can add five years of financial security on the back end.

When To Get Professional Help

You need a financial planner if you have multiple income sources (pension, Social Security, rental income, part-time work) or if your retirement savings exceed $500,000. A fiduciary advisor charges a flat fee or hourly rate and is legally required to act in your best interest.

You do not need a planner if your situation is simple: Social Security plus a single 401(k) or IRA. Free tools like the SSA's retirement estimator and basic withdrawal calculators can get you close enough.

If debt is the primary obstacle to retirement, talk to a bankruptcy attorney before a financial planner. Many offer free consultations. You cannot build a retirement plan on a foundation of lawsuits and garnishments.

The Bottom Line

You can retire when your guaranteed income plus safe withdrawals from savings cover your expenses. For most people, that means a combination of Social Security, retirement accounts, and careful spending. If debt is blocking your path, address it now,bankruptcy might be the tool that makes retirement possible.

Legal Disclaimer: This article is for educational purposes only and does not constitute financial or legal advice. Consult a licensed financial advisor or attorney for guidance on your specific retirement planning or debt situation.