So you want to retire, but do you have a financial plan in place? If not, why not? Creating a retirement strategy is essential for all individuals approaching their golden years. It ensures that you are able to enjoy the last phase of your life and live it according to your needs and desires.
However, many people don’t realize that even the most basic planning can go a long way in helping them achieve their retirement goals, by:
- Investing early
- Creating a retirement strategy
- Determining your retirement goals and spending needs
- Utilizing a bucket retirement income strategy
- Adopting the unique approach to comprehensive retirement planning at ARS
A financial advisor in Bountiful, UT can help you realize, set, and reach those financial goals and milestones, one at a time.
Investing early
Invest early and often. The longer you invest, the more potential for your investments to compound. For example, a 25-year-old who invests $5,500 per year in an IRA over 40 years will end up with $1 million more than someone who starts at age 35 and saves the same amount of money each year.
If that young person assumes a 7% annual rate of return on their portfolio, they’ll see their nest egg grow by about 1% each month compared to just 0.4% for the later saver’s portfolio.
This phenomenon is known as compounding interest. Compounding works its magic because it allows you to reinvest returns from previous investments into new ones. This increases the total amount invested over time as long as you continue making contributions (and assuming good investment performance). Even if you don’t have much money at first—say $50 per month—the power of compounding can turn this small contribution into something substantial over time thanks to regular deposits and investment growth!
Why creating retirement strategy is essential
While you can certainly create your own financial plan, it’s a good idea to enlist the help of someone who has expertise in retirement planning. A financial planner can not only help you understand what kinds of investments are right for your situation, but they often have access to many more options than most people do.
For example, if your employer offers a 401(k) program (and match) through its benefits package, a financial planner can help you identify which funds are best suited for you—and this may be different from what other employees choose within the same company.
In addition to making sure that all of your needs are met and that nothing is forgotten (or overlooked), it’s also important that any investment decision made is one that fits with your risk tolerance level and time horizon. Choosing too risky an investment could lead to greater losses than anticipated; conversely, choosing too conservatively could mean missing out on potential gains.
Understand your risk tolerance
Understanding your risk tolerance is an important part of investing. Risk tolerance refers to how much volatility you can handle in your portfolio, and it’s a crucial factor in deciding what types of investments to pursue.
There are two main types of risk: systematic and idiosyncratic.
Systematic risk refers to the general ups and downs of the market, which generally happens over time periods longer than a year. Systematic risk is typically widespread across most of the market and tends to be more predictable than idiosyncratic risks.
Idiosyncratic risk is the kind of risk that comes from investing in specific companies or industries – this kind of risk could be a company going bankrupt, or a new product flopping after being released.
The more concentrated you are with your investments, the more exposure you’ll take on idiosyncratic risk and the less exposure you’ll take on systematic risk. Because this type of risk isn’t always tied up with the rest of the market (it’s specific to individual companies), it can be more unpredictable than systematic risks like inflation or interest rates over time. This means that if something goes wrong with one company’s operations, it could have a greater impact on your portfolio than if some other kind of event happened (like inflation). Idiosyncratic risks can be reduced by investing in a broad base of quality companies equity or debt offerings.
Determining your goals and spending needs in retirement
You may have a general idea of what you want to do when you retire, but how do you plan for it then actually turn your nest egg into a sustainable income? The first step is to identify your goals and the types of things that are important to you. At ARS we do this through our W.E.A.L.T.H (Wisdom, Exchanges, Affluence, Legacy, Time, Health) process. Once you’ve identified and prioritized your values and goals, you’ll need to estimate how much money will be required.
Don’t forget to consider expenses that may be necessary during retirement like health insurance premiums or large future purchases like a new car or retirement cabin.
Lastly, an individual will need to identify whether they plan on continuing his or her current lifestyle or reducing expenses.This decision becomes more complicated when one considers age, health, ambitions, and longevity.
Here’s a quick way to break down your retirement expenses:
- Fixed expenses: These are items that you must pay each month, such as rent or mortgage payments and car insurance premiums.
- Variable expenses: These are items that may vary from month to month, but are not optional (such as food or gas).
- Discretionary spending (savings): You’ll need some money set aside each month for discretionary spending, which includes travel and entertainment costs, gifts and donations to charities, dining out with friends or family members who don’t live nearby—anything you want to spend money on that isn’t essential to living comfortably at home without financial stress.
What is a Bucket Income Strategy?
Once your goals are identified and the costs quantified, how do you turn your hard-earned savings into an income that will last? That’s where the ARS Bucket Income Strategy comes in.
The Bucket Income Strategy is a way to manage your retirement income and spending needs. It’s also an effective way to manage risk, as well as taxes. This works by creating three different buckets: short-term, mid-term, and long-term.
The amount you initially allocate to each bucket will depend on your age, health, and spending needs. Monies are then allocated to each bucket, securing your short-term spending needs while allowing money you won’t need for at least 5 years to participate in market growth. There is no one-way to complete this process and needs to be customized to each individual’s unique situation.
Through the Bucket Income Strategy, our team of CERTIFIED FINANCIAL PLANNERS™ has been able to help our clients successfully retire and stay retired.
ARS has a unique approach to comprehensive retirement planning
Whether you’re retired or planning to retire in a few years or even a decade, we have a comprehensive approach to retirement planning that is designed to help you understand your risk tolerance and determine your goals and spending needs in retirement. We can also help create a customized retirement strategy that meets all of your financial needs and goals.
Our program helps clients develop strategies that include:
- Maintaining current income levels throughout their lives
- Diversification across different asset types (equities, fixed income,alternatives, cash)
- Proactive tax management
- Assistance with estate planning
If you’re like many Americans, retirement is a big question mark. It may seem like something that will never happen, but it’s important to start planning for the future now. The financial planners in Bountiful, Utah, at ARS have worked with hundreds of families over multiple decades.
What we have found is that a comprehensive approach to retirement planning is necessary to best serve every client.
It’s our opinion that many advisors will sell you a product versus deliver a plan. We are here to take the time to get to know you individually, help you identify your retirement goals, and deliver a custom plan to get you there.
Call our team at Advanced Retirement Strategies today! We look forward to getting to know you and your loved ones as you progress toward your ideal retirement.
CERTIFIED FINANCIAL PLANNERS™ at Advanced Retirement Strategies
Working with a CERTIFIED FINANCIAL PLANNER™ is an excellent investment of your time and money. With the high standards for CFP® certification, you’ll know you’re getting the expertise and knowledge of a highly-trained and educated professional who will always act in your best interests and with the loftiest ethical standards.
Our team of retirement planners and investment advisors in Bountiful, Utah specializes in helping diligent savers with $250,000 or more of investment and retirement assets (not counting your primary residence) prepare for and then transition into retirement.
If you’re looking for a CFP® to help you live the retirement you have dreamed of, contact us now.
