How Do I Know If I’m Financially Ready to Retire?

What is the average net worth of someone retiring at 65?

There is no single “right” net worth at retirement, and the average is a particularly weak finish line. The Federal Reserve's 2022 Survey of Consumer Finances reported median net worth of $409,900 and mean net worth of $1,794,600 for families with a reference person age 65 to 74. For families age 55 to 64, the 2022 median was $364,500 and the mean was $1,566,900.

That gap is the point. The median identifies the midpoint family; the mean is lifted by families with much more wealth. Neither figure tells you what a household spends, how much of its wealth is available to spend, when benefits begin, or how taxes affect withdrawals.

Use the benchmark as context, then replace the weak question with a useful one. Weak question: “Am I above average?” Strong question: “Can my income sources and investable assets fund my annual spending gap?” The second question has an operating model behind it. The first has a scoreboard.

The Federal Reserve defines net worth as assets minus liabilities. That broad measure includes financial and nonfinancial assets, including a primary residence, vehicles, business equity, and other property. Retirement readiness is narrower: it is about the resources that can reliably meet bills.

Is my home equity included when deciding whether I can retire?

Home equity belongs in net worth, but it belongs in a retirement-income plan only when there is a clear, practical way it will support spending. The Congressional Research Service states that retirement resources can include Social Security, defined-benefit pensions, defined-contribution plans and IRAs, housing equity, and other savings. Those sources do not arrive as the same kind of cash flow.

Separate the balance sheet before drawing a conclusion. Liquid investments and retirement accounts may fund withdrawals. Home equity may provide housing security or may require a future decision before it becomes available for spending. Other property or business equity can raise net worth without creating a monthly deposit. Treating all of those categories as interchangeable creates a false sense of capacity.

This distinction matters because a household can appear wealthy while still having a small pool of assets available for routine spending. It also keeps the plan honest about lifestyle costs. For spending categories that may change later in life, the practical food-planning guidance in How Should Postmenopausal Adults Build a Food Plan for Bone Health? can be useful alongside a broader household budget.

Why is my net worth high but my retirement income low?

Net worth can be high while retirement income is low because net worth measures ownership after debts, not the cash flow produced by that ownership. A paid-off house, vehicle, business interest, or pre-tax 401(k) can increase net worth without automatically paying this year's expenses.

Run a “spending-gap test.” First, list planned annual spending. Next, subtract reliable income sources, such as Social Security, a defined-benefit pension, and any expected work income. The remainder is the amount the portfolio must provide. The Social Security Administration says retirement benefits can be claimed from age 62 through age 70, are based on lifetime earnings, and rise when claiming is delayed up to age 70; its online account lets people compare estimates at different claiming ages.

Then test the gap against investable assets. Morningstar's 2024 retirement-income research estimated a 3.7% highest safe initial withdrawal rate in its base case for a new retiree drawing from a portfolio over 30 years with a 90% probability of funds remaining. Its base case excluded Social Security and other nonportfolio income, which makes the rate useful for evaluating the gap rather than total spending. In Morningstar's 2024 illustration, a $1 million portfolio produced $37,000 of first-year portfolio spending at 3.7%, before inflation adjustments.

The rate is not a universal promise. Morningstar's 2024 report also found a 4.8% modeled safe starting rate when observed lifetime spending patterns were incorporated. That contrast exposes the real decision: a plan changes when spending is flexible, when income changes, and when the asset mix differs. A single age-based net-worth figure cannot capture those moving parts.

Taxes are another conversion step. The IRS states that traditional IRA and many workplace-plan withdrawals are generally included in taxable income, except for amounts already taxed or eligible for tax-free treatment. The IRS also states that required minimum distributions generally begin at age 73. A pre-tax account balance is therefore not identical to spendable after-tax income.

Build the retirement-ready view

Put the information into one page. The goal is not a prettier net-worth statement. The goal is a decision-ready view that reduces re-explaining and reveals the actual constraint.

1. Name the spending target. Use the annual amount the household expects to spend, not an average household's wealth.
2. List reliable income separately. Include estimated Social Security at the intended claiming age and any pension or planned earnings that are part of the plan.
3. Identify the gap. This is the portion investments must cover after reliable income.
4. Classify assets by access. Separate investable assets from home equity and other illiquid holdings.
5. Translate balances into after-tax spending capacity. Traditional-account taxes and the IRS distribution rules belong in the calculation.

That is the shift: stop asking whether the household resembles an average. Ask whether the plan funds the work it has to do. This week, write the annual spending figure, the estimated reliable-income figure, and the investable-asset figure on one page. The unanswered question will be visible immediately.