Today we’re going to focus on how to build a retirement plan, as well as what retirement planning means to you. As you’re thinking about whether you’re going to be able to retire with that paycheck for life, you need to think about a number of different variables that you will use in order to generate that analysis. There are also five dials that you can twist or turn within those variables that might be able to help as well. First, let’s look at those variables:
1. When do you want to retire?
2. How long are you going to live on the money you save?
3. How much are you going to save on an annual basis?
4. What will the rate of return be for your investments now and during retirement?
5. What sources of income will you have during retirement?
6. How much do you plan to spend?
7. What’s the rate of inflation?
Let’s say you take those variables and enter them into a calculator that says you can retire on time with the paycheck you want for the rest of your life. If this happens to you, congratulations! It’s a great first step. Every three to five years, come back and redo the calculation to make sure you’re on track.
However, for most of us, the calculation will come back saying that we need to do something a little bit different to reach our goals. That’s when we look at the five dials I mentioned earlier. What can we change in our assumptions to see if we can get back on track?
1. Can you save more?
2. Can you spend less?
3. Should you increase the rate of return on your investments?
4. Can you put off retirement for a few more years?
5. Can I not live so long?
If you can control that last one, you’ve got more power than I do. I think 20 to 30 years is an appropriate time horizon to think that you’re going to be in retirement. What I’ve found is that if you’re under 50, you have more control over a few items, including saving and the risk you can take in your portfolio. The younger you are and the more years you have to retirement, the better. If you’re closer to retirement, maybe spending less or working a few more years could be the right dials to change.
I recommend that anybody and everybody seek out a professional certified financial planner five years before you plan to retire. They can give you a second opinion on your retirement plan. After you’ve received that second opinion, I would try to get that updated periodically before you actually retire. It helps you stay on track to retire on time with a paycheck for life.
Hopefully, this is helpful in your quest to retire on time with a paycheck for life. If you have any questions for me, don’t hesitate to reach out and give me a call or send me an email. I look forward to hearing from you soon.