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The prospect of retirement can be daunting, with so many questions it can seem overwhelming. How much to save, what benefits you can count on, and how much you should spend in your post-income years are all factors to consider. While these are necessary questions, the answers aren’t exactly cut and dried, as is often the case with important financial decisions like this.
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However, just because there isn’t a one-size-fits-all approach to retirement doesn’t mean there aren’t a number of guidelines to follow that can help steer you in the right direction. . Here’s a rundown of some of the numbers you should look for when considering retirement and how you can best prepare for that big day.
Your retirement savings
In addition to all the money you have (ideally) set aside for retirement, look at all the other assets you have that you will want to liquidate and be able to do so fairly quickly. This will give you a set amount that you can start using to supplement any monthly income that continues to come in, regardless of Social Security. Knowing this number will also help you when developing your monthly budget.
An oft-cited guideline here is that most retirees spend about 70-80% of what they used to do while working. This isn’t true for everyone, but it can help when it comes to planning for the future, no matter how far away retirement is.
You will also want to consider how long you will spend in retirement. Although it’s not exactly easy to predict your own lifespan, given your retirement age compared to the average lifespan in the United States, which is 79. Thinking about it, along with your own personal health and family history, can all help you know what you should be looking for when it comes to preparing.
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Your monthly income
When considering retirement, it’s important to consider the income you may receive from Social Security, pension, or any other source of income you can rely on once a paycheck is in. excluded from the equation. When it comes to Social Security, that money typically accounts for 40% of most retirees’ income — and that monthly number can vary widely depending on the age at which you decide to retire.
However, there are some realities you will want to consider. The Medicaid Hospital Reimbursement Fund is expected to become insolvent by 2026 (three years ahead of schedule), while Social Security could meet a similar fate by 2034. Although it is possible that the Congress intervenes in both situations, the safest bet is to plan for the worst case scenario.
Your credit score
If you find yourself in a situation where you need to borrow money, your credit score, as always, will determine how much you can borrow and what kind of interest rate you can expect. Of course, the higher the score, the better your chances of getting a good deal on possible loans. Anything below 760 will likely need to be upgraded, although it can be surprisingly easy.
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Your debt to income ratio
If you’re still in debt when you retire, it’s important to determine what debt-to-income ratio you expect. A simple way to see this is to add up all of your monthly payments, from rent or mortgage to credit cards to student loans, and then divide that by your gross monthly income. The resulting number will be your debt-to-equity ratio, which would ideally be 35% or less. You’ll also want to look at everyone’s interest rates and redefine which ones you might want to pay off as aggressively as your budget allows.
Your bottom line
One of the most important numbers to understand is what your bottom line will be from month to month. If the money you take in is more than you spend, that’s fine. However, if you find yourself in the red, you’ll need to reconsider your budget, look for ways to adjust your income, or (if possible) consider postponing your retirement until those numbers come back in your favour.
Another popular rule is the 4% rule. Basically, look at what 4% of your total savings is and see if that would be enough to live on (along with other income). If the numbers work, this 4% is adjusted annually for inflation, although it is argued that this methodology should be adjusted to the 3.3% rule given the current financial climate.
Of course, if this all seems a little too overwhelming, consider hiring a financial advisor to make sure you’re as prepared as possible.
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