What is Retirement Readiness Score?
A retirement readiness score is a multi-dimensional snapshot of whether a household is on track to maintain its standard of living in retirement. It combines savings rate, current balance versus age-based benchmarks, debt position, time horizon, and projected income replacement into a 0 to 100 view, with category breakdown so the next action is visible.
The Formula
Score = Weighted Sum (Savings Rate + Nest Egg vs Age + Debt Position + Time Horizon + Income Replacement)
Categories are equally weighted by default. The result highlights the lowest-scoring category as the highest-leverage action.
Worked Example
A 42-year-old saving 8% of income with a partial employer match, balance roughly equal to annual salary, manageable student-loan debt, no written retirement target.
- Savings Rate: 5 (below the 15% benchmark)
- Nest Egg vs Age: 4 (Fidelity rule of thumb suggests 3x salary by 40)
- Debt Position: 6 (managed but slowing contributions)
- Time Horizon: 8 (20+ years to retirement)
- Income Replacement: 3 (no model yet)
📌 Score around 52. Largest gap is Income Replacement (no plan modeled), but the highest-leverage move is lifting Savings Rate to capture the full match and then raising by 1-2% annually.
Why This Matters
Compounding makes early action priceless
A dollar contributed at age 30 has roughly 4 to 5x the retirement value of a dollar contributed at age 50 under typical return assumptions. Surfacing the gap early is the most leveraged single action.
Most households underestimate the gap
Median working-age retirement balances trail the Fidelity age-based rules of thumb significantly per the Federal Reserve Survey of Consumer Finances. A scored snapshot turns vague worry into a specific number.
Small rate increases have outsized impact
Increasing savings rate from 6% to 10% at age 35 on a $75,000 salary adds roughly $250,000 to the retirement balance by age 65 under typical return assumptions. The percentage change feels small; the dollar outcome is transformative because of the 30-year compounding window.
Common Mistakes
❌ Treating the score as a guarantee or a goal
The score is a snapshot, not a forecast. Markets, lifespan, healthcare costs, and policy changes all sit outside the model. Use the score to identify the gap, then build a plan with a licensed advisor.
❌ Ignoring the employer 401(k) match
An unclaimed match is the only place in personal finance where you turn down a near-guaranteed pay raise. Capturing it is the highest-leverage retirement step before anything else.
❌ Counting home equity as retirement savings
Home equity is illiquid and accessing it requires selling, downsizing, or taking a reverse mortgage with significant fees. The Fidelity and Vanguard retirement frameworks intentionally exclude primary residence equity from the nest-egg calculation for this reason.
Industry Benchmarks
| Category | Good | Average | Poor |
|---|---|---|---|
| Recommended savings rate | 15%+ of gross income | 10-15% | Below 5% |
| Age-based balance benchmark | 1x salary by 30, 3x by 40, 6x by 50 | Within one band of target | More than one band below |
| Median retirement balance, age 55-64 | Above $250,000 | ~$185,000 | Under $50,000 |
Source: Federal Reserve Survey of Consumer Finances 2022 and Fidelity Retirement Savings Guidelines 2024
Benchmark data sourced from Federal Reserve Survey of Consumer Finances 2022 and Fidelity Retirement Savings Guidelines 2024.