Fundamentals of Setting Retirement Goals


Think about your investment portfolio for a minute. Is it simply an accumulation of investments you’ve acquired along the way? You may have a CD from childhood, a rolled-over 401(k) from your last job, or that stock in the latest tech company that you were sold on by your broker. Now think of them collectively: do they represent a common retirement goal or are they a hodgepodge of random investments that aren’t aligned with your needs?

If it’s the latter, you need to take a closer look at your retirement goals and set some that actually work FOR you.

Be Clear

Write them down on a piece of paper, type up something on your tablet, talk them over with your spouse: do what you need to do to come up with a clear set of goals that you would like to achieve over the next few years. Remember, you should always revisit your goals every so often as situations change so as to keep them aligned as you move forward through life. Goals change; make sure your investments reflect those changes.

For instance, at 40 years old, you shouldn’t be so concerned with fluctuations in your portfolio. Rather, you should form a strategy that ensures the highest probability of maximizing returns over a 20-year time horizon, suggests US News and World Report. However, if you’re 65 and on the cusp of retirement, you want to make sure you have a solid balance that you could withdraw $50,000 from tomorrow if you needed it. Because your portfolio value is important today, next week and next year, you want to be sure your near-term cash flow needs can be met despite market fluctuations.

Focus on the Most Effective Solutions

Once you’ve formulated your goals, it’s time to evaluate individual choices to help you get to that goal step by step. Keep it simple: you may find that a portfolio comprising just a few index funds is better able to meet your goals than an overwhelmingly complex one. In general, unless it’s a passion of yours or you are a professional, it’s best to steer clear of fancy high-fee investments such as hedge funds, precious metals and other seemingly exotic options. Plain, low-cost funds may bring about returns that are just as good yet without the stress and risk.

Create a Transition Plan

After you have the above two steps down pat, come up with a transition plan. This means you have to take into account the tax consequences of your investments and devise a plan that will protect you during the gaps. A transition plan includes these tax burdens, as well as overall allocation, risk level, and fees or penalties. If you’re coming up on retirement, for instance, you’ll have to reduce risk by waiting to realize capital gains until you reach  the zero percent capital gains rate after retirement. Of course, your stock broker or financial planner can help you fine tune these above steps, but it’s important to be aware of what you need to do to take care of yourself. Familiarize yourself with a stock market lawyerslike the people Thomas Law Group to cover all your bases.