My husband and I typically take a vacation in late October after the tax filing deadline.  This year we decided to rent a home at the beach for a week.  Do you have any idea how many beach homes are available for rent?  We spent all day combing through websites, and looking at alternatives.  The exercise reminded me of the statistic that is often mentioned in financial planning articles – people spend more time planning for their vacation than planning for their retirement.

Whether you are an employee planning for retirement, a business owner looking to install a retirement plan, or a financial advisor helping people plan for retirement there is one thing in common: everyone is hoping to build a successful retirement outcome.  Following are the three critical components to a successful retirement outcome:

TIME

There are two components of time:

1.      the amount of time you will spend working, and
2.      the amount of time you will spend in retirement

You may think you have more control over the time you will spend working, but there are things that can pop up out of your control that may impact the time you spend working.  Any change to the amount of time that you have to save will impact your retirement outcome.  Might you possibly:

• Return to school?
• Decide to change careers?
• Take time off for children?
• Get hurt or sick?

You likely understand that you have no idea how long you will spend in retirement unless you know how old you will be when you pass.  So a successful retirement will require that you don’t run out of money no matter how long you live.  There are few different ways that you can craft your retirement savings to develop a successful retirement outcome:

• Principal preservation.  Under this option, you live on the interest earnings that your investments can spin off without touching the principal.  This will require a significant amount of principal; consider investment return of 5%.  For every $100,000 in your retirement savings, you will be able to spend $5,000 per year.
• Declining balance.  Like the principal preservation method, you live on the interest generated by your investments, but you spend some of the principal each year too.  Consider the consequences of this option, however.  As you spend principal, you will have less in your account to generate income.  And if you spend too aggressively, then the principal may be gone before you are.
• Mix it up.  To insure a successful retirement outcome, many planners are suggesting to their clients that they annuitize a portion of their retirement savings so that basic needs are covered each month.  That portion of the retirement account covers the “fixed costs” while the balance of the portfolio is available for “variable costs” that are incurred.

DEPOSITS

In order to have a successful retirement outcome, you must at some point start making deposits to your retirement account.  Some are fortunate enough to work for an employer who contributes to retirement for them.  But even with an employer contribution, individuals must typically make a commitment to save for themselves too.

The amount that you deposit to your account depends a little bit on when you start, and how much you want to have when you choose to retire.  The amount you need to save increases the longer you wait.  The following example is a person who earns $40,000 per year, their investments earn 8% per year during their lifetime, and they plan to retire at age 65 with $1 million in their retirement account:

RISK

The rate of return that a person receives on retirement savings will have an impact on the success or failure of meeting retirement goals.  Statistics say that regular investments in a diversified portfolio will be the most likely produce a successful retirement outcome over the long term.  There are a lot of different investment strategies, but just like Goldilocks, there is one that is just right for you.

• Very low risk.  There are investments that carry very low risk.  But unfortunately that risk comes at a cost – low return.  Most very low risk investments barely keep up with the rate of inflation so will require larger deposits to meet your goal.
• High risk.  If you are running out of time to meet your successful retirement goal you may think you need to take more risk.  Remember, however, that last year’s winners are often this year’s losers.  The fall on a roller coaster is much more frightening than that climb.
• Moderate risk.  If you have a mix of investments, asset classes, with global exposure in a managed portfolio, you are likely to attain a successful retirement outcome.

SUMMARY

These three components are the divers of retirement savings.  And depending on how each of these factors stacks up for you will determine whether or not you will have a successful retirement outcome.  Click here to request contact and see how we at Benefit Resources can help you with all three success factors:

Time – check out our new Start Now pricing and simplified plan design.

Deposits – we work with you so that you can dial in the amount you want to save each year

Risk – we do not sell investments, so you are free to work with your financial advisor to develop the portfolio that is designed with you in mind.

I did spend a day looking for a vacation rental.  But my vacation will only last a week.  My retirement will, hopefully, last for decades.  Yes, it’s a ways off, but it is of critical importance to me that I keep my eye on the ball so that I can have a successful retirement.  Let us help you start your journey to a successful retirement outcome too.

Image courtesy of Sura Nualpradid / FreeDigitalPhotos.net