Financial Needs Assessment for Retirement
A financial needs assessment is used by financial planners and advisers to map out the needs of clients and determine how to reach those goals. An assessment strictly for retirement purposes is possible, though some planners or advisers may include it as part of an overall strategy that can include educational needs, insurance planning and estate or succession planning. Once you complete an assessment with your adviser, he lays out what you need to do to reach your retirement goals.
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What's in an Assessment?
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A typical financial needs assessment, whether it be for retirement or a combination of items, contains a few basic items, including your personal information (such as your address), co-applicants (such as your wife) and dependants (such as any children you have). You list your assets, liabilities, expenses and income. Specifically for retirement, you note your expected living expenses during retirement, your life expectancy and the sources of income you will have after retirement (investments, pension and Social Security benefits).
Why Have an Assessment?
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Your financial planner or adviser analyzes the information you submit and maps out a plan to reach those goals. That can include investing your money or adjusting your lifestyle. For example, if you have 30 years before reaching the typical retirement age of 65 and want to have $1 million saved for that time, he may suggest investing in a higher risk portfolio, as it can offer the highest rate of return so your money can grow quicker.
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Benefits
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A financial needs assessment is an efficient way to map out what your goals are for retirement. You know where you need to be and have an idea of how you will get there. You can make necessary changes to your lifestyle or investment behavior. You can also prepare for unforeseen or what-if scenarios.
Risk of Not Having Assessment
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Not having a financial plan, which would include a financial needs assessment, can result in not being able to retire when you want. Without guidance on how much money you will need during retirement, you can't properly budget how much to save over time to reach that goal.
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