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Retirement planning is often postponed as life's immediacy beckons us, today. Ron Redfield, CPA, PFS, explains the need to start retirement planning, now—and how to set realistic, retirement planning goals.
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Question by Steve Kobrin: Ron, my father has always preached the virtue of goal-setting, namely "plan your work, and work your plan." Tell us how this relates to personal finance. How important is it to use a personal financial planning sample, as a guide to personal financial planning, in general—in terms of personal goals for saving money—such as for retirement planning, for example?
Answer by Ron Redfield (continued):
Retirement planning is another important phase of personal finance planning. We've already looked at an example of a young person, who should prioritize saving money and making general goals. Now, let's look at a married couple that is thinking about retirement planning.
For this example, let's consider our married couple to be age 40, with twin children 2 years old, and a goal to retire at age 65.
Of course, the need for a formal plan, as compared to an informal plan, is so much more important for retirement planning, than for a young person who is just setting out. The couple needs to consider the possibility of future college funding for the children, perhaps paying for a wedding, and other milestone events during the years.
At the same time, the couple needs to consider having enough money for retirement and perhaps a vacation home. Of course the couple needs to include insurance needs for the both of them, an estate plan, a will, and taxable and tax-deferred savings vehicles.
Often in this situation we will develop a formal, personal budgeting plan—as part of overall retirement planning. In that personal budget, we consider many items—such as current salaries, possible future inheritances, college costs, monthly budgets, inflation rates, and assumed rates of returns on investments.
On several occasions, we have come across clients who had goals of retirement at a specific age, and we brought to their attention that their retirement planning goals and reality were not in sync with each other.
For example, a couple might require annualized investment returns of 15% to achieve their retirement goals. In this case, we would stress to the couple that 15% is not a realistic long-term rate of return and that the risk involved (in attempting to get such a high, long-term return) can be very harmful to capital preservation. In a situation as this, we might suggest that the client postpone retirement for 3 more years, so that their other retirement planning goals could be achieved.
Again, the importance of retirement planning is vital. I encourage people to write down their retirement goals and revisit them every so often. Goals for retirement should be set at a realistic level. And, the goals should be reviewed, on at least an annual basis, by a competent retirement planning professional. This review process will allow for adjustments, changes, explanations, and perhaps the addition of some fresh new ideas.
Now that we've looked at some important financial goals—of both young individuals and married couples—let's summarize some helpful hints to get you through the process of goal-setting.
Ronald R. Redfield, CPA, PFS, is available for a free consultation and sample portfolio based on your investment risk tolerance levels. And you're warmly invited to request a complementary copy of Ron's text on investment philosophy.
Please contact Ron by visiting him at Redfield, Blonsky & Co., sending him an email, or calling him at 1 (908) 276-7226. Be sure and read Ron's latest commentary on financial investments, to keep up with market changes.