Key facts
- AARP has identified six key financial health metrics for retirees.
- The six metrics include monthly cash flow, Social Security estimates, retirement savings, credit scores, high-interest debt, and debt-to-income ratios.
- Two in five U.S. workers worry about having enough money for retirement.
- AARP suggests these measures can help identify financial problems early.
- Lenders generally prefer a debt-to-income ratio of 36% or less for prospective homebuyers.
AARP has detailed six financial health metrics that retirees can use to assess their financial well-being. These metrics, outlined in a report published this week, aim to provide a quick snapshot of an individual's financial standing and identify potential issues early.
The timing of the report is particularly relevant, as approximately two in five U.S. workers express concerns about having sufficient funds for a comfortable retirement, according to the Employee Benefit Research Institute’s 2026 Retirement Confidence Survey, which AARP referenced. Rising living costs, worries about the future of Social Security, and significant debt levels among older Americans are contributing to these anxieties.
The six key measures proposed by AARP are:
- Monthly cash flow: This involves subtracting total household expenses from take-home pay. A negative result indicates that spending exceeds income, potentially signaling a need to reduce recurring costs or increase earnings.
- Social Security estimates: Workers can obtain an estimate of their future Social Security benefits by creating an online account with the Social Security Administration. The report notes that delaying benefit claims beyond age 62 can lead to higher monthly payments up to age 70.
- Retirement savings: This involves summing balances from various retirement accounts like 401(k)s and IRAs and comparing the total to expected Social Security and other income sources. AARP's report utilizes a variation of the 4% withdrawal rule to estimate potential annual retirement income from savings.
- Credit scores: These three-digit scores, provided by agencies such as FICO and VantageScore, are crucial for lenders evaluating applications for credit cards, auto loans, and mortgages. The report suggests that paying down credit card balances and maintaining low credit utilization can improve credit profiles.
- High-interest debt: The report highlights the impact of loans with high interest rates, which can significantly increase the cost of carrying a balance. It mentions two common payoff strategies: the avalanche method (prioritizing highest interest rates) and the snowball method (starting with the smallest balance).
- Debt-to-income ratio: This metric, which compares monthly debt payments to gross monthly income, is especially important for those seeking mortgages. Lenders typically prefer this ratio to be 36% or lower, according to the report.