Letter of the Month

Think back to the last time you went on a big vacation. Not a quick getaway, but an extended trip with flights, hotels, entertainment, and dining. More than likely, you spent hours and hours coming up with your budget, searching for flights, finding the right hotel, planning your excursions, etc. Therefore, when you arrived at your destination, you had a great time with little worry because of all your hard work in preparing for your journey.

Thinking about and planning for your retirement is not the same as prepping for a vacation. Many would say it is more important than a trip (some may say otherwise!). Regardless, I find that most people will spend more time thinking about their next big vacation than they do on their retirement. Whether you’re more concerned with the next grand adventure or walking out of the office for the final time, proper attention needs to be given to the latter. Many do not know how to begin planning for retirement. The following is how we look at retirement planning.

What’s the Destination?

Just saying that you want to retire one day is not a plan. You want to have a clear and concise goal. And that goal begins with how much money you will need to be comfortable in retirement. That does not mean some large dollar amount in your 401(k), instead it means the amount of monthly income required for you to enjoy retirement which includes covering all expenses. Next, you need to have a proposed retirement date. Once you have established income needs and set a proposed retirement date, you then have a clear and concise retirement goal. “I would like to be in a position to retire at age 65 and I need $5,000 of monthly income.” This is a good starting point to get you to the next step of determining the best plan of action to reach your established goal.

How will I be arriving?

Income and assets are the basic components that provide money for retirement. First, let’s look at income. This can be Social Security, a Defined Benefit Plan, rental income, or continued employment or other sources of funds. Now is the time to go ahead and project what these funding sources will be at retirement. For Social Security information, you can visit their website at www.ssa.gov to get a projection of your benefits. If you are one of the few that has a Defined Benefit Plan such as PERS, you should be able to request the amount of that benefit at a future date.

For most of us, our income sources do not quite cover our needs. To compensate for the shortcomings, we save in our 401(k)s, IRAs, etc. One’s current savings plan (method) is evaluated by compiling a list of current savings balance(s), current personal contribution amount, employer contribution, and investment assets. The investment component is very important. Being too conservative limits growth; being too aggressive presents excessive volatility. All these factors determine your potential nest egg by the time you retire. It’s important to talk with your advisor about your asset allocation(s) to ensure you are in the proper mix for your goals and objectives.

What if I’m late for arrival?

If this exercise reveals that you are not quite on track for your destination, no need to panic! Adjustments can be made to assist in attaining you goals and objectives. Some examples of adjustments are an increase in retirement contributions, adjustments in your asset allocation, extended retirement date, or some combination of the three.

It is important that you start looking at this now! Do not wait until you are leaving the office for the last time to know where you stand financially in retirement. Give your advisor a call today and review where you are on the journey! It may take a little time on your part, but it would be time well spent and give you comfort in knowing where you are!


Alan P. McCormick, CFP™

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