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What is a Retirement Plan?

July 07, 2023

          Have you ever taken a long road trip and just hopped in the car without ever looking at a roadmap? Well, that's how most people go about retirement planning today. Too bad there aren't GPS's for retirement planning, right? They simply save money here and there with no destination in mind. In fact, many people don't really even understand what a retirement plan entails. 

          Most people spend more time planning a vacation than they do their own retirement! Lots of people think an asset allocation model (how you mix investments in a portfolio i.e. large cap value, small cap, fixed income, etc.) is a retirement plan. However, it is not even close. 

          The foundation of a well thought out retirement plan should consider how much money you want to spend in retirement. What financial goals you may have, like playing golf a couple times a week, or going on an annual vacation, or maybe being able to support your favorite charity. You will also need to identify how much you will need just to live the lifestyle you are accustomed to. Once you can get your head wrapped around that, then a retirement plan takes everything into account and can identify whether or not you're on track to hitting your target, with existing and projected assets and income you will have in the future. 

          Once you layout a clear road map, you are able to make better investment decisions that will complement your plan and your goals. Things like saving some money into a Roth IRA to create tax-free income in retirement or recognizing there is a significant risk to a plan if one spouse were to need outrageously expensive long-term healthcare. 

          What I've seen over the years is that once a client is able to see their financial picture from a high-level bird's eye perspective, they can identify whether their goals are achievable or not with the current course of action and make recommendations that can help them achieve a higher probability of success. It also creates a starting point or a barometer that as the years pass, you can measure your achievements. 

          Trends begin to emerge and, just like life, all things change, and so do retirement plans. You can always tweak your retirement plan as needed over time. In fact, once the foundation of a plan is created, you can even compare different scenarios. Things like, should I start my social security at age 62 or would it benefit me to wait? Or, what happens to me, if my spouse were to die? How much income would I need, and can I continue to live the same lifestyle? July is a time for travel and vacation planning. But this month, consider whether it's worth some time and effort to focus on your retirement goals and get the biggest vacation of your life all figured out.