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3 Numbers That Can Make or Break Your Retirement

By Katie Brockman - Nov 28, 2019 at 8:05AM

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These can either lead to success or heaps of financial trouble.

When you're saving for retirement, every decision counts. One wrong move -- like waiting too long to begin preparing -- could drastically affect your overall savings, making it more difficult to retire comfortably.

But when you make the right choices, you can set yourself up for long-term retirement success. There are a lot of numbers to keep track of when you're saving for the future, but these three are some of the most crucial. When you make the best financial decisions, these numbers can ensure a comfortable and enjoyable retirement. But if you make some not-so-good choices, these figures could spell disaster.

Older couple standing on the beach

Image source: Getty Images

1. The amount you have saved by the time you retire

Also sometimes referred to as your retirement number, the amount you should aim to save by retirement age is one of the most crucial numbers to keep in mind as you're saving. If you have a robust retirement fund, your golden years may be one of the most enjoyable periods of your life. But if your savings are sparse, you risk running out of money too soon and spending your retirement basically broke.

How much you should aim to save depends on a few factors, such as the age you plan to retire and how much you expect to spend each year in retirement. If you plan to work into your 70s, you won't need to save as much as if you want to retire at age 60. Similarly, if you dream of traveling the world and learning expensive new hobbies in retirement, you'll need to save more than if you plan to hang out at home most days.

To figure out your retirement number, run your information through a retirement calculator. Keep in mind that this is only an estimate; it's impossible to predict exactly how much you'll need to save. But a good estimate is far better than nothing, and the more accurate your inputs are, the more accurate your results will be.

2. The amount you expect to withdraw from your savings each year in retirement

Saving is challenging enough, but the other half of the equation is making sure you pace your spending in retirement. Even the healthiest nest eggs won't last long enough if you blow through your savings too quickly, so it's important to have a withdrawal strategy in mind when you retire.

The amount you withdraw each year from your retirement fund will depend on what your overall savings look like as well as any other sources of income you have. You'll likely have Social Security benefits to at least somewhat depend on, although your monthly checks are designed to replace only around 40% of your pre-retirement income. If you have a pension, that will help, too -- you'll need to withdraw even less from your personal savings each year.

Think about how much you want to spend each year in retirement, then consider whether you can realistically afford that much. Be sure to account for everyday expenses as well as big expenditures like travel to get an estimate of what your retirement spending will look like. A common benchmark to consider is the 4% rule, which says you can withdraw 4% of your savings during the first year of retirement, then adjust that number each following year to account for inflation. This "rule" is really more of a guideline, so it won't necessarily fit everyone's needs. But it is a good way to get a rough idea of how much you'll be able to spend each year in retirement.

Also, don't forget about how taxes will impact your savings. If you're stashing your money in a 401(k) or traditional IRA, you'll owe income taxes on your withdrawals -- which can affect your withdrawal strategy. If you end up withdrawing more than you'd planned because you didn't consider how much you'd owe in taxes, it could potentially throw off your entire retirement plan.

3. The age you begin claiming Social Security benefits

Although you can't expect to rely solely on Social Security benefits in retirement, they can significantly help make ends meet. But how much you receive each month will depend on the age you start claiming.

To receive the full benefit amount you're theoretically entitled to, you'll need to claim at your full retirement age (FRA). If you were born in 1960 or later, your FRA is 67 years. Those born before 1960 have a FRA of either 66 or 66 plus a few months, depending on the exact year you were born.

You can claim benefits before your FRA as early as age 62, but by doing so, you'll receive smaller checks each month. If you have a FRA of 67 and begin claiming at 62, your checks will be reduced by 30%. But if you wait until after your FRA to claim (up until age 70), you'll receive extra cash each month to make up for the time you weren't receiving benefits. That bonus can be significant, too -- if your FRA is 67 and you claim at age 70, you'll receive a 24% bonus each month on top of your full amount.

Now, in theory, it shouldn't matter what age you start claiming benefits -- as long as you live an average life span. Either you'll receive more (but smaller) checks by claiming early, or fewer (but bigger) checks by waiting. However, the age you claim can make a big difference if you expect to live a much longer- or shorter-than-average life. For instance, if you only live until, say, age 75, you're probably better off claiming as early as you can so you have more time to enjoy that money. But if you think you may live into your 90s, you'll earn more money over a lifetime if you wait until age 70 to claim. Of course, nobody can predict their life expectancy with 100% accuracy. But if you have reason to believe you won't live an average life span, you can maximize your benefits by claiming at the right age.

There's a lot of planning that goes into saving for the future, and there are certain factors that can make or break your retirement. By doing your homework and making smart financial decisions, you can ensure these three numbers work out in your favor.

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