Only 3 Numbers Count for Withdrawal — Do You Know Yours?

• Before withdrawing, you need to know your investment account balance.

• It is also important to know how much Social Security income you will receive.

• Finally, you need to know how much you plan to spend to make sure your income covers your expenses.

• A recent study identified one habit that doubled Americans’ retirement savings and moved retirement from dream to reality. Read more here.

Are you ready to retire or not? It can be difficult to answer this question. However, there are three key numbers you need to look at that will tell you everything you need to know about whether you are ready to retire.

Here’s what they are.

The first big number you need to know is your investment account balance. That’s the amount of money you have set aside in your 401(k), IRA, and taxable brokerage accounts. You need to know this number because the money from these accounts supplements your Social Security income.

You can’t live on Social Security alone, so you should have additional savings to help pay your bills as a retiree. Once you know the total amount you have invested, you can determine how much income your accounts will provide.

Experts recommend withdrawing 3.7% of your account balance in your first year of retirement. So, if you have, say $850K in your investment accounts, you multiply that number to determine that you have $31,450 a year in savings income to spend.

The next big number you need to know is the amount of your Social Security benefit. Your Social Security payment will also be a crucial source of retirement income and, unlike your savings, this source of funds is guaranteed to last a lifetime and has built-in inflation protection.

Your Social Security benefit is designed to replace about 40% of your pre-retirement income. However, for some people, it will replace more and for others, it will not replace as higher earners have a lower portion of their earnings replaced as the benefit formula is progressive. Your age when you claim benefits is also important, as those who file for benefits before their full retirement age face an early filing penalty while those who delay past FRA get delayed retirement credits that increase benefits.

Whether you request earlier or later will depend on your financial situation, as well as whether you prefer more smaller checks or fewer larger checks. If you expect a long life expectancy or need your spouse to receive a large survivor’s benefit, then a delayed claim is also advisable.

Ultimately, however, the main thing that matters here is how much your benefit will be. That number will help determine if you have enough income when combined with savings. You can visit your Social Security account online to see how much money will come from these benefits so you know how much income they will provide you to spend.

Finally, the next key number you need to know is how much you will spend each year. This is because you want to make sure that your combined income from Social Security and savings covers all the expenses you need to make. If he doesn’t, then you are not ready to retire. If Social Security and your savings provide enough to cover your expenses — including the health care costs you’ll likely incur in retirement — then you can stop working.

You can set a retirement budget to figure this number out or estimate that you’ll probably need enough income to replace about 80% of the amount you were earning at work before you retired.

By calculating these three numbers, you can make the best and most informed retirement choices so you don’t leave work too soon and find yourself facing regret.

Most Americans drastically underestimate how much they need to retire and overestimate how prepared they are. But the data shows that people with one addiction have more than double saving those who don’t.

And no, it has nothing to do with increasing your income, saving, cutting coupons, or even reducing your lifestyle. It’s much simpler (and powerful) than either of those. Frankly, it’s shocking that more people don’t take up the habit considering how easy it is.