Throughout your lifetime, you’ll have many numbers to remember, and as you get older, it seems like there are even more. We’ve got some more numbers for you, and you’re going to want to remember these, because they’re important when you’re preparing for retirement. What are some financial numbers you need to know for your financial future?
- The first number is your monthly cashflow. It’s important to have a handle on your income vs expenses and know exactly where your money is going. To determine this, write down all your income, subtract all of your expenses, and look at the dollar amount that remains. If it’s a gain, great! If it’s a loss, it’s time to rethink your budget. Use a budget to keep track of the income and expenses occurring on regular basis and be aware of your loss or gain each month.
- The next number is the money you can expect from your Social Security benefits. What would you get if you took Social Security at age 62? What about the ages between that and 70? Social Security benefits account for about 40 percent of the average retiree’s income, so you’ll need to determine how you’ll pay for the rest of your expenses.
- Know how much you have in your retirement savings. Calculate how much money you will be able to access from all sources of liquid investments. These are investments you can immediately convert to cash, as opposed to things like real estate, which can’t be easily liquidated. Divide that number by 25 to find the amount of income you could reasonably use to fund your retirement. The sooner you start saving for retirement, the better off you’ll be when you reach retirement age, because compound interest will help you build your fund. Be aware that when you do access your retirement funds, you’ll likely owe taxes.
- It’s important to know your credit score. This number determines how much you can borrow and how much interest you’ll pay. A score below 760 means there’s room for improvement. Paying your bills on time is the biggest factor in your credit score, and your debt to income ratio also has a big impact.
- That brings us to the next number: your debt to income ratio. To determine this, add up all of your monthly payments, including rent or mortgage, student loans, credit cards, and other debts. Divide this number by your gross monthly income, and the resulting percentage is your debt to income ratio. Below 35% is optimal.
- Know the interest rate on your debts. This is the cost of your money. Look at your statements to determine your interest rates, then put your cash into paying down the highest-interest debts.
As you can see, the first three numbers have to do with how much you’re putting away for your retirement- your assets. The last three are about the debt you’re carrying, or your liability. Planning for retirement also involves carefully considering how much money you’ll need once you’re no longer working. The rule of thumb has been to plan for 70 to 80 percent of your current income, but many retirees are finding that a comfortable amount is closer to 100 percent.
When you’re ready to create a strong financial plan for the future that will allow you to live the lifestyle you want to live, Nelson Financial Planning can help. As one of the best financial planning firms in Central Florida, we provide guidance and financial advice so that you can make informed decisions about your future. We believe you should enjoy your retirement, so we’ll work with you to create a plan for a stress-free future. Call (407) 307-3061 or contact us today to set up your free consultation.