Would you get in a car for a road trip without knowing where you were going? A surprise destination might sound fun, but what if you didn’t know how much gas you had? And you didn’t have a map, either.
It may sound crazy, but this is how many people plan for retirement. They put money away in a 401(k) or an IRA without any clear direction on how much they need to save or what they’re saving for.
Why Saving Money Isn’t Enough
Putting money aside for retirement is important, but it’s only part of the equation. You have to know how much money you’ll need in retirement, which can only be determined if you know what your future goals are.
Do you want to travel? Are you hoping to downsize your home? Is leaving a legacy for your grandchildren a priority? All of these things can drastically change your income needs in retirement and, by default, your saving needs today. A written retirement plan ensures your savings goals align with your long-term needs.
Unfortunately, many people underestimate their future income needs and rely too heavily on Social Security to fund their golden years. The average retired worker gets about $1,900 every month from Social Security, which is equivalent to the average mortgage payment in Minnesota. Chances are, you’ll need much more money to cover your food, clothes, hobbies, travel and medical care.
Blindly putting money into a retirement account also prevents you from using a tax strategy. If you save everything in a qualified account, such as a 401(k) and you are in a higher tax bracket in retirement than you are now, you could be creating a major tax bill for your future self. A comprehensive retirement plan considers this and helps you find a balance between qualified and unqualified savings to ensure your retirement plan is as tax-efficient as possible.
A written retirement plan also helps you prepare for potential risks, including long-term care costs, inflation or sequence of returns risk. You may have a nest egg built up, but if you don’t plan for these potential pitfalls, your savings could quickly shrink.
What Goes Into a Written Plan?
A good retirement plan takes all areas of your financial life into account. When we build a customized financial roadmap for a client, we cover:
- Retirement Planning
- Insurance
- College Planning
- Risk Management
- Income Planning
- Existing Portfolio Analysis and Advice
- Estate Planning
- Cash Flow Analysis
- Tax Aware Investing
In general, a financial roadmap is meant to take the guesswork out of retirement planning. We use shock testing software to help determine how much money you need to retire, how much money you can use during your golden years and how long your money will last.
Without a concrete plan for the future, it’s easy to set cruise control and coast through life, never thinking about what lies ahead. A written plan gives you clear short and long-term goals to help you live more purposefully. Our goals-based planning process is designed to keep you on track to achieve your dreams.
A solid plan also helps you maximize your savings by finding the right balance between risk and growth. When we meet with clients, we think outside the box and create an investment strategy tailored to their unique goals. There is no one-size-fits-all investment, and we want to help you find the right vehicles to grow and protect your hard-earned dollars.
Creating a comprehensive retirement plan also gives you access to the industry expertise of financial advisors like ourselves. You only retire once, but we’ve helped hundreds of people retire successfully! From investment decisions to creating an estate plan, we act as your personal guides every step of the way to and through retirement.
If you want to take your retirement savings to the next level and create a comprehensive financial roadmap, reach out to our team!
The opinions are those of the writer, and not the recommendations or responsibility of Cetera Investment Services LLC or its representatives.