How to Create Your Personal Retirement Plan
By: Elias Park | CFP®, CRPC®
Planning for retirement can be daunting, especially when faced with the uncertainties of future expenses and income. As a CERTIFIED FINANCIAL PLANNER™, I understand the importance of having a comprehensive strategy in place to bridge the gap between retirement expenses and guaranteed income sources like Social Security benefits. This is where our Sequential Algorithm comes isutilized, offering a structured approach to assess your retirement needs and set achievable financial goals.
Bridging the Gap: Understanding Retirement Expenses and Income
Retirement is often associated with relaxation and leisure, but it's essential to remember that it also comes with financial responsibilities. While Social Security benefits provide a foundation for retirement income, they may not cover all your expenses. In fact, there's often a gap between the income from Social Security and the expenses you'll face in retirement.
Keep in mind: More than likely, this gap may widen over time due to inflation.
Calculating the Yearly Gap
The first step in the Sequential Algorithm is to calculate the yearly gap between your expected retirement expenses and your guaranteed income sources. This involves a careful examination of your anticipated spending patterns, factoring in the essentials:
- Housing
- Home insurance, mortgage, HOA fees
- Healthcare
- Prescriptions, long-term care
- Leisure activities
With this number in hand, the next step is to future value out the final nest egg needed to sustain your retirement lifestyle. This involves projecting your expenses into the future and accounting for inflationary pressures. By quantifying the nest egg required, you gain clarity on the financial target you need to achieve for a comfortable retirement.
Setting Target Returns and Managing Risk
Once your final nest egg is established, the focus shifts to setting achievable financial goals. This is where the Sequential Algorithm shines, as it allows for a systematic approach to determine the target return needed to reach your retirement objectives within a specified timeframe.
The target return is calculated based on various factors, including your current savings, time horizon, and risk tolerance. By leveraging financial modeling techniques, such as the Efficient Frontier approach, we can identify the optimal balance between risk and return to maximize the growth of your investments while minimizing exposure to market volatility.
Implementing Your Personal Retirement Plan
With a clear understanding of your retirement needs and financial goals, it's time to implement your personal retirement plan. This involves selecting appropriate investment vehicles and asset allocation strategies tailored to your risk profile and long-term objectives.
With a RetireUS subscription, you gain access to personalized CERTIFIED FINANCIAL PLANNER™ advice which focuses on selecting the proper investment approach to accomplish your goals. As a CFP®, I use the Sequential Algorithm to grasp a solidified understanding of what you need out of your investments by the time you retire.
Conclusion
The Sequential Algorithm offers a structured framework for building a resilient retirement plan that accounts for the uncertainties of the future. By understanding your:
- Gap between retirement expenses and guaranteed income sources,
- Final nest egg calculation,
- Target return needed to get there, and
- Least amount of risk to attain your return…
You can embark on your retirement journey with confidence and peace of mind.
Remember, saving for retirement is not just about setting aside money; it's about creating a comprehensive plan that aligns with your lifestyle and aspirations. At RetireUS, our team of CERTIFIED FINANCIAL PLANNERs™ are here to help you navigate the complexities of retirement planning and guide you towards a path to financial freedom.
This article is provided by McAdam LLC dba RetireUS for informational purposes only. Investing involves the risk of loss and investors should be prepared to bear potential losses. Past performance may not be indicative of future results and may have been impacted by events and economic conditions that will not prevail in the future. No portion of this article is to be construed as a solicitation to buy or sell a security or the provision of personalized investment, tax, or legal advice. Certain information contained in this report is derived from sources that McAdam believes to be reliable; however, the Firm does not guarantee the accuracy or timeliness of such information and assumes no liability for any resulting damages.
This article is the sole opinion of this individual and is not indicative of the firm’s belief.
