Financial Roadmap for Retirees
Planning for your retirement begins with thinking about your retirement goals and how long you have to meet them. This is why, in this article, we are going to explore the best financial roadmap for retirees. Let’s get started!
Understand How Much Time You Have
The initial groundwork of an effective retirement strategy is created by taking into account your current age and expected retirement age. Now, keep in mind that the longer the time you have between today and retirement, the higher the level of risk your investment portfolio can withstand. Thus, if you are young and have thirty-something years left until retirement, then you should have the majority of your assets in riskier investments such as stocks. Though there will be a lot of volatility, stocks have always historically outperformed other securities over long time periods. Take note that “long” here means at least more than 10 years.
Start Determining Your Spending Needs for Retirement
Always have realistic expectations about your post-retirement spending habits. This will enable you to define the required size of a retirement portfolio. Most people tend to believe that after retirement, their annual spending will be amounting to only 70% to 80% of what they spent previously. Such types of assumptions are simply unrealistic, especially if your mortgage has not been paid off or if sudden medical expenses occur. Also, it should be noted that retirees sometimes choose to spend their first few years splurging on things such as travel or other bucket-list goals.
Make Sure You Have Calculated After-Tax Rate of Your Investment Returns
Once you have determined the expected time horizons and spending requirements, you need to calculate the after-tax real rate of return to assess the feasibility of the portfolio producing the needed income. A required rate of return above 10% (before taxes) is generally considered a not-so-realistic expectation even for long-term investing. As you age, this particular return threshold will go down. This is mainly because low-risk retirement portfolios happen to be largely composed of fixed income securities which are low-yielding.
Assess Your Ability to Tolerate Risk Against Your Investment Goals
It doesn’t matter if it is you, or a professional money manager who is in charge of the investment decisions. A portfolio allocation that properly balances the concerns of risk aversion and returns objectives is very important for retirement planning. Ask yourself how much risk you are willing to take to meet your objectives. Also, consider having some income set aside which is completely risk-free.
Estate Planning
Another key step in a well-rounded retirement plan is estate planning wherein each aspect of it happens to require the expertise of different professionals such as lawyers and accountants. When you have a proper estate plan along with life insurance coverage, it makes sure that your assets are distributed in a manner of your choosing. Additionally, it also ensures that your loved ones will not experience much financial hardship following your death.
This brings us to the end of our discussion on the best financial roadmap for retirees. Now, do let us know some of your personal opinions on the same.
