Different “needs” and retirement plans but some basics remain

By | June 7, 2013

Whether you income in retirement comes from mainly passive or other means it is important while you are younger to come up with a plan of some sort to help you make financial decisions with retirement in mind. There are a few things to keep in mind while doing this. Everyone has different desires with regards to how much they “need” as well as their ambitions and dreams. Some may simply want to be able to afford groceries and not have to live with their children, while others may want to upgrade their yacht for voyages around the globe. Some investment plans sound ridiculous for some but for others they are within reach. But regardless of your current income level or desires, some of the basics for investing for retirement that need to be addressed are the areas of risk tolerance and a good general indication of how much money you will need ratio or percentage wise compared to your current earnings. There are also some mistakes you should avoid thus diverting a retirement disaster.

As I am sure most all are aware of, there are many, many different investment opportunities. No matter how apparently safe, everyone has some degree of risk to it. Even if you choose to put your cash in a safety deposit box at the bank or in your basement, there is never a sure thing. The cash could be devalued due to inflation, someone could find it and steal it etc. But the important thing is that you are comfortable with where your money is going and you are ok with its inherent risks. If you see any financial manager, you will be informed of several investment options. Based on their history (since no one knows the future for sure) some have tended to perform better than others but with a higher returns often come higher risks. If you are comfortable with a little more risk than these kind of investments may be right for you. If on the other hand you prefer historically safer yet lower returns, there are options for this too. A financial advisor can also show you their past performance to help you decide on your risk tolerance. What is right for one person is not always right for the other. You need to feel comfortable with an investment and not second guessing yourself and worrying about it. I believe it is better to feel comfortable with your investment than nervous yet hoping for higher returns. But how much will you actually need dollar wise to have in order to retire?

There seems to be a few rules of thumb out there for how much you will need in order to retire. Ultimately it depends on how much you think you are going to spend. But a good one I like is the 4% rule. No this is not a perfect formula, nor is anyone but this may at least get you started in the right direction and get you thinking about it. If you really want to get indepth about different theories etc, see Wikipedia’s retirement calculators page. But there are also many retirement calculators that exist that you can just punch in numbers and see what happens given your inputs. The 4% rule indicates that you withdrawal 4% the first year of retirement, adjust for inflation and not run out for around 25-30 years. An example would be lets say you have $1,000,000.

You would withdrawal $40,000 the first year. If inflation where at 2%, the next year you would withdrawal $40800 the next year, $41,616 the second etc.

Some things to strongly consider when saving for retirement are these points.

– Failing to get professional financial advise for retirement.

– Will you really spend less when you retire?

– Don’t overlook inflation.

– I will just keep working attitude, since your health may say otherwise.

– If you have not yet, start planning for retirement even if you are getting close to that time.

– Do your best to get out of debt first!

– Overlooking taxes

– Overlooking healthcare costs

– Don’t take too much risk as you get older since it is more difficult to get back.

For more valuable information on saving for retirement visit the CSS Partners website.