Retirement investment planning refers to the process of determining your retirement income objectives, along with the decisions and actions that are required to achieve those objectives. The process is very extensive and includes estimating expenses, identifying sources of income and avenues of investment, managing assets, and implementing a savings regime. With the help of future cash flows, you can determine if your income retirement objective will be achieved. Accordingly, you can select your retirement investments. The basics of retirement investment planning As the name suggests, retirement investment is the planning that you undertake to prepare for life after you retire. It involves financial aspects of your life and non-financial aspects like lifestyle choices. These choices include the manner in which you spend time in retirement, when you completely quit working, where you live, etc. A holistic approach to retirement investment planning considers all these aspects. Stages of retirement investment planning The focus of retirement investment planning changes as you advance through your life. In the initial stage, which is early in your working life, the planning pertains to setting aside a sum of money for retirement. In the next stage, which is the middle of your working life, the planning includes determining specific income or asset targets and taking action to achieve them. Later, as you approach the retirement age, you shift from accumulating assets to a distribution phase. In this phase, you have stopped paying for your retirement. Rather, your savings, which have accumulated over decades, start to pay out. When and how to plan your retirement Retirement investment planning should begin decades before your retirement age. The sooner you start, the better. You need to arrive at a “magic number,” which is the amount you need to retire comfortably. This number is highly personalized, and there are various rules that help you estimate this figure. Some experts suggest that you require around $1 million to retire comfortably. Others recommend using the 80% rule. According to this rule, you require 80% of your income at your retirement age. For example, if you earn $100,000 per year, you would require savings that could produce $80,000 every year for approximately 20 years, or $1.6 million. Other experts suggest that if you do not have enough savings to meet this benchmark, you must adjust your lifestyle and live on what you have. Other important aspects to consider Retirement investment planning goes beyond how much money you will need when you retire and how much you need to save. It takes into account a complete picture of your finances. For instance, your home may be the single biggest asset you own. Home equity may be used to obtain mortgage loans during retirement. Similarly, your planning will be influenced by tax considerations, as most retirement accounts are taxed as ordinary income tax. Another key component in retirement planning is protecting your assets; therefore, insurance plays a pivotal role here.
