3 Numbers You Must Know to Retire With Confidence

There is a lot of information you need to understand when it comes to retirement. In this article, we will cover the three numbers you need to know to retire with confidence! Be sure to read all the way to the end, since many people make the wrong assumptions about which numbers will really help them retire with confidence.

First off, Social Security is one of the greatest assets that you’ll have. In fact, your 401K balance may pale in comparison to the amount you stand to receive from Social Security throughout your retirement, especially if you have a spouse receiving benefits as well. Having a plan for when you’ll take Social Security is extremely important. You earned your Social Security benefits, so you want to maximize the amount you can receive.

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Key Numbers to Consider for Retirement
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Key Numbers to Consider for Retirement

1) The Age You’ll Start Taking Social Security

With that in mind, the first number you should know to retire with confidence is the age at which you’ll start taking Social Security. This is not an arbitrary number, as many may think. In fact, most Americans begin taking Social Security as early as possible, at age 62. However, you should remember there are some penalties that come along with taking Social Security early, as well as an earnings cap if you’re still working. Creating a plan for when you’ll take Social Security and what is right for you is extremely important!

Another thing to consider is what taxes you’ll be paying on your Social Security. What we mean by this is: will you be in a lower tax bracket early in your retirement or later? Families who have saved well for retirement, with lots of money in IRAs or 401Ks, may find themselves in a higher tax bracket later in retirement. There are many reasons why that could happen; however, the important thing is that you are considering the taxes you’ll pay throughout your retirement. What will your tax bracket be at the beginning of retirement? When you reach age 70? When you reach age 73 or 75, when required minimum distributions begin?

These are important questions to keep in mind. If you defer Social Security and wait until age 70 to claim, you could get the maximum check, and that can be tempting. However, you should keep tax implications in mind, since a higher tax bracket in later retirement could mean you’re receiving less in net benefits over time due to paying higher taxes than you might have if you had taken Social Security early. As you can see, there is no “one-size-fits-all” solution. Some individuals benefit from taking Social Security early, while others benefit from deferring to age 70. Looking critically at your retirement plans and developing a strategy for what age you’ll start claiming Social Security may boost your confidence when you retire.

2) How Much Money Is Positioned to Grow Tax-Free

Another number you need to know to help you retire with confidence is how much of your money is positioned to grow tax-free. This is an important number, since how much money you keep is just as important as how much money you make. The more of your money you can keep, the more freedom you’ll have to give, spend, and live with confidence. This number relies on more than just your current tax bracket; it also depends on where you’re saving money.

Many people think about diversifying their portfolio amongst many investments, but you also need to have tax diversification in your portfolio. Having different buckets of money—some of which are never taxed, some are somewhat taxed, and some are always taxed—allows you to achieve tax diversification. When reaching retirement, lots of people have the majority of their funds in IRAs or 401Ks. That is when people can run into issues with not having optimal tax diversification, since IRAs and 401Ks will eventually be taxed. If you’re interested in learning more about tax diversification, check out more of our content! The important thing here is that you know how much of your money is positioned to grow tax-free, since knowing that number can give you more confidence in retirement.

3) Your Budget

As we always say, your budget is one of the most important numbers in your retirement plan. You need to know how much money you’ll need on a monthly basis to maintain your lifestyle in retirement. Lots of retirees focus on their savings number, trying to hit a certain goal, and forget to pay attention to their budgets. Knowing how much money you’ll need to spend to do what you want to do is critically important, since it will help you gauge if your portfolio is equipped to keep up with that spending. Focusing on your budget and refining it is very important. Understanding your budget allows you to know how much you can spend confidently, and this can help you retire with confidence.

If you’re ready to learn more about how to create a solid budget for retirement, check out one of our other videos!

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A successful retirement means being able to check off all the items on your retirement bucket list without worrying about jeopardizing your financial security. Understanding what you can comfortably spend allows you to enjoy a stress-free retirement. To achieve this, consider working with a fiduciary adviser who is obligated to act in your best interest. Additionally, maintain a budget and stick to it, helping to ensure you’re not depleting your portfolio too quickly.