You’ve likely heard the phrase: “fail to plan, then plan to fail”. This is ever-so-true when it comes to retirement. If proper planning is not done, then you could possibly experience a less-than-optimal retirement.
In today’s blog post, I’ll be discussing why retirement planning is so important. Additionally, you’ll learn why retirement planning should involve MUCH MORE than just your investments. And that having a plan allows you to make course corrections along the way, which could make a considerable difference for your future!
RETIREMENT PLANNING FORCES YOU TO FOCUS ON MULTIPLE IMPORTANT ISSUES
I suspect that many people have the notion that retirement planning is just about their investments. If that were the case, then retirement would be fairly simple to plan for. Essentially it would just involve estimating the size of your retirement nest egg.
However, retirement planning is much more than just your investments. To ensure that you will have the best chance of a secure and enjoyable retirement, you need to focus on many different aspects of your financial life.
This includes planning for where you will live, maximizing Social Security, estimating healthcare costs (especially if you retire early), having an idea of your lifestyle / standard of living, applying tax reduction strategies, reviewing your estate planning documents (Will, Trust, etc…), choosing the right type and amount of life insurance, evaluating and choosing the appropriate employee benefits, addressing financial concerns that keep you up at night, managing your debt properly, etc…
Planning around these (and other) financial items is vitally important as they are intended to grow and protect your retirement assets, maximize income, save money, reduce costs, minimize taxation, improve your situation, and allow you to make good financial decisions.
And the retirement benefits of these things are that you may be able to travel more, reduce stress, cross items off of your bucket list, retire earlier, give money away (even to your children), volunteer, spend time with family, and create excitement as you look toward the future. Proper planning essentially gives you freedom, choices, and flexibility.
RETIREMENT PLANNING ALLOWS YOU TO MAKE COURSE CORRECTIONS
By definition, retirement planning means that you have a “plan”. And if you have a plan it means that you can make adjustments to that plan over time. In fact you may need to make changes to the plan to stay on course. If a plan were never in place, then you wouldn’t really know that you were off course.
Some people may decide to just get in their car without any planning and drive to a vacation destination. However, most people will plan ahead (especially if they have kids). This would include planning where you want to go, packing enough clothes for the duration of the trip, packing electronics for the car ride (to keep the kids quiet of course), deciding which roads you will take, etc…
If properly planning is not done in the vacation scenario, then you could end up at a less-than-desirable location or end up with a miserable journey! But even if a vacation goes terribly bad one year, you can always plan for a different vacation next time. You don’t have that luxury with retirement!
If you get to the doorstep of retirement and realize that you don’t have enough money to retire, then your first reaction is going to be, “I wish I would have planned earlier”.
By starting a plan today, even though it will never be 100% accurate, you allow yourself to make changes (course corrections) over time as opposed to making large changes, which may not be possible, at retirement.
Let me give you an example. Imagine an airline pilot who is flying from New York to Hawaii. It would benefit him or her (and the passengers) to have an idea of how much fuel is needed to make the trip. By running some calculations, it can be determined if the pilot needs to make a pitstop to refuel. But if planning and calculations are not done ahead of time, the pilot would discover in mid-flight that they aren’t going to have enough fuel. It’s too late at that point!
Your retirement is no different. It would be much better to find out today if you need to add more fuel (money) to your plan so that your retirement plane doesn’t come crashing down.
Some other types of corrections that may need to be made include:
1. Reducing Your Investment Risk – Imagine that your investments perform better than expected. That may be an ideal time to take on less risk without sacrificing your retirement goal.
2. Moving Money From A Taxable Account To A Tax Free Account – If you find yourself in a low income or low tax bracket year, this may be a way to minimize taxes which would improve your net worth.
3. Adjusting Your Goal – You may find that your feelings change about when you want to retire, where you want to live, what your standard of living will be, etc… As a result, you may need to do some things differently to account for that.
These are just a few examples of some of the adjustments that may need to be made. But in reality, everybody has different circumstances and there could be a number of different things that should be adjusted over time.
As you can see, retirement planning should involve a review of the many different areas in your financial life. And by simply starting this process, you can then make any necessary changes along the way. But if you’ve not done any planning at all, then retirement may not turn out as you had “hoped”.
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Do you currently have a plan in place? Have you had to make any necessary course corrections along the way? Please share any thoughts, comments, or questions below.
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