The 4 Critical Elements Of Retirement Planning
Retirement planning is critical for most people to have enough money when they hang up the working life. Before you try to develop a plan for retirement, you should think about some of the basic elements. How you address these four issues will have a noticeable impact on your retirement.
Time
Ideally, you started planning for retirement income by the time you were in your 30s. Sooner is always better, but the best time to start is always now.
The reason time is so important is two-fold. First, time allows returns on investments and interest to compound. A person who started planning for retirement in their 20s doesn’t have to take as much out of each paycheck as someone who started in their 40s. Second, time gives you room to move past unpredictable downturns. If the market struggles for 5 years, that’s not as big a deal if your plan stretches over 40 years versus if you’re trying to get it all done in 10 or 10 years.
Lifestyle Choices
Ultimately, the point of retirement is to live a life you desire once your job isn’t one of the central features of your existence. You need to think about what sort of lifestyle you want so you can set some targets. If you want to travel and maintain two houses, for example, your retirement plan needs to be bigger than someone who wants to downsize and do woodworking.
Low Scenarios
Retirement planning should focus on the lowest funded scenario that’s credible. Overshooting is fine, but you don’t want to retire with too little in money and assets. A professional planner can help you project how your investments will perform so you can consider the low-end scenarios. This will help you to consider basic things like how much you need to put in and what you’ll be able to take out when the time comes.
If you plan around a worst-case scenario and then overshoot the mark, there’s no downside. You will just have more money than expected.
Risk
You don’t want your retirement planning efforts to leave you worried. Consequently, you should adjust your retirement plan to your maximum acceptable risk. Some folks will be more comfortable taking bigger risks for the likelihood of better long-term returns, while others will be happy letting the steady drip of contributions to their plan do the job.
Finally, you will want to adjust your risk as you approach retirement. You should draw down investments and assets in high-risk areas so you can be confident of how much you’ll have.
If you have questions, contact a professional retirement planning service to help you plan your finances for your future.