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Retirement readiness depends on a few factors, such as how prepared you are to cover your expenses and whether or not you're prepared to transition into retired life. While there's no magic formula that can tell you definitively that you're ready, here's a quick guide that can make the decision a little easier -- at least from a financial perspective.

Will you have enough income?

Being able to retire isn't about having enough money, it's about having enough income. I know people without much savings at all, but with big monthly pension checks that cover their expenses and more. In other words, from a combination of your savings, Social Security, and any pensions or other sources you may have, you'll need to be able to generate enough income to live comfortably.

A million dollars may sound like a ton of money in the bank, but according to the widely used "4% rule" of retirement, you should only count on about $40,000 per year from that nest egg if you want it to last throughout your retirement. If you're not yet eligible for Social Security, will that really be enough?

According to most experts, you'll need about 80% of your pre-retirement income to sustain your lifestyle after retiring. While this isn't a one-size-fits-all rule, it's a good place to start.

Calculating your retirement income

Start by figuring out the income you can expect from your savings. Using the 4% rule I mentioned, by dividing your retirement nest egg by 25, you can calculate how much you can withdraw during your first year of retirement, and give yourself cost-of-living adjustments in subsequent years. Using our million-dollar example, this corresponds to $40,000.

Next, estimate how much you (and your spouse, if applicable) can expect to receive from Social Security. The formula used to compute your Social Security benefits is actually quite lengthy, but if you create an account at www.ssa.gov and view your Social Security statements, you can get a pretty good estimate of your monthly benefit at full retirement age, as well as at ages 62 and 70, the earliest and latest you can file.

If you plan to file at an age other than those listed, here's a guide to help you make the necessary adjustment. Multiply your estimated monthly benefit at your chosen retirement age by 12 to compute your annual Social Security income.

Finally, add any pension or annuity income you may have. The total from all sources is your estimated post-retirement annual income.

For example, let's say that I want to retire when my wife and I are both 62, and that we have the following income streams:

  • $1,000,000 in savings, which produces $40,000 in annual income.
  • $2,400 per month in estimated Social Security income -- $28,800 per year.
  • No pensions or other income.

This adds up to total income of $68,800 per year. Once you arrive at your own income figure, ask yourself if it will be enough to live on in retirement. If the answer is yes, you may be financially ready to retire. If not, you may want to wait a few years to build up your savings and allow your Social Security benefit to grow.

Early retirees: Don't forget about these issues

If you're under the age of 65, don't forget to factor healthcare costs into your budget. Unless you're one of those lucky retirees who gets to keep their health benefits, you'll need to cover your own insurance costs. Sure, the Affordable Care Act has made this more, well, affordable, but a 60-year-old couple can expect to pay over $15,000 per year for a gold-level health insurance plan.

Another consideration is whether or not you'll be able to use your retirement savings. You generally can't touch your traditional IRA until 59-1/2 without being assessed a penalty, and 401(k) funds are available penalty-free after 55, provided you're no longer working. A Roth IRA allows you to withdraw your original contributions (but not your investment returns) early, making it a great account type for those who may want to retire early.

The point is to make sure not only that you'll have enough income when you retire, but that you'll be free to withdraw your retirement savings.

So, are you ready to retire?

There's no one-size-fits-all way to check if you're ready to retire or not. It depends on several factors, such as your age, savings, and expectations of retired life. While this is intended to be a good starting point in your decision-making process, the question, "Are you ready to retire?" can only be answered by you.