Importance of Retirement Planning
The importance of retirement planning cannot be overstated. Retirement planning begins with setting clearly defined life goals and putting together a financial plan to achieve those goals upon retirement. Savers must begin to plan early in order to take advantage of compound interest and avoid financial risk. The greatest risk to a good retirement is the prospect of outliving your money.
Other People Are Reading
-
Life and Retirement Goals
-
Individuals must acknowledge to themselves the particular goals that they wish to achieve in life, while couples should get together, compare notes and make compromises to ensure that they are working toward similar end points. Typical life goals include building families, earning higher education degrees and setting aside money for charitable causes or children and grandchildren at death.
In terms of retirement planning, savers may wish to work part time at rewarding careers, or quit employment altogether to retire to days on Florida beaches and 18 holes of golf.
How Much?
-
Retirement planners must calculate the expense of accomplishing their respective life goals and retirement dreams. You will begin by adding up the total costs in today's dollars and finish by estimating these future expenses per inflation adjustments. Inflation is identified with increasing price levels and lost purchasing power. The U.S. Bureau of Labor Statistics Consumer Price Index calculates historical inflation at roughly 3 percent per year.
-
Retirement Plan
-
The retirement plan outlines how much money to save into which vehicles for the individual or couple. Conventional saving vehicles are defined as stocks, bonds and cash. The plan should also cover income protection strategies in the form of insurance. Lastly, financial plans set guidelines for the timing and amount of withdrawals upon the ultimate retirement.
The retirement plan will uncover which life goals are actually possible to achieve by integrating estimated costs, income levels and your tolerance for risk to design a personal savings blueprint.
Compound Interest
-
The impact of compound interest accelerates over time. For example, $100 monthly savings that returns 8 percent annually will grow to $18,295 in 10 years, $58,902 in 20 years and $349,101 over 40 years. Savers must begin to plan for retirement as early as possible in order to take advantage of compound interest.
The Risks of Failing to Plan for Retirement
-
Retirement planning risks center upon outliving your money at retirement. This scenario will force retirees to find work until they pass away, at best, or live in poverty, at worst. Entering retirement with minimal funds arises from a lack of a financial plan and/or poor investment decisions.
Poor investment decisions often result from a failure to begin planning early. Middle-aged individuals that have neglected retirement planning will be prone to take on more risks to build a nest egg in shorter amounts of time. Short time frames will expose retirement plans to market volatility that will be difficult to overcome in the near term.
-
References
Resources
- Photo Credit Wikipedia Commons - Public Domain
