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Retirement Planning

Types of retirement planning that include cash-flow and goals-based planning

Retirement Planning looks like...

  • Goals-based planning

    • Creating a strategy to reach your intended retirement “goals”.

  • Cash flow planning

    • Determining your net income after expenses to see what track you are on and where you will lead in terms of retirement income and security.

Pre-Retirement Planning

  • Calculate how much you need to save for retirement (the average American spends 20 years in retirement so have enough money to last 20 years or more)

  • Contribute to your company's defined contribution plan (401k)

  • Contribute to your Individual Retirement Account (Roth IRA if eligible)

  • Know your social security benefits

  • Establish your goals

  • Have a Financial Plan to help you reach your goals!

Post-Retirement Planning

  • Develop a Budget

  • Control your discretionary spending

  • Manage the risk in your investment accounts

  • Understand potential healthcare costs

  • Understand your investments

  • Calculate the performance of your investment accounts at least twice a year

  • Evaluate the sustainability of the withdraws from your portfolio

  • Know what may adversely affect your portfolio

Retired grandmother with her granddaughter gardening

How Much Do I Need to Retire?

Retirement Planning Made Simple

Know Your Spending Habits

Spending habits like other habits, do not change very much. A lifetime of spending habits will not suddenly change when someone retires. So people usually underestimate how much income they will need to live the life they want after they stop working. 

Be realistic, review your annual credit card summary and bank statements to determine your actual cash outflows.

Retirement Income

Retirement income is usually generated from three different sources. Dividends, interest, and/or capital gains.

Timing is everything when it comes to retirement.

For example, let's assume a person retires needing 6% annual growth on their portfolio and luckily, at the time of their retirement, interest rates happen to be 6%. That person could then generate income with little to no risk to capital and retire comfortably.

On the other hand, if interest rates are at 3%, then this person would need to take a sizable risk to generate the extra 3% a year needed. 

People planning for retirement should know the growth rate they need and how they will generate it.

Importance of Return

To achieve retirement goals people have to generate a return on their portfolio. So many people assume a 6% or 8% return will be there without knowing the possibilities. 

People may look and say, "Well the stock market has averaged 9% or 10% for the last 100 years," not realizing that there are periods when the stock market declines for multiple years or may not make any headway for 10 or 15 years. (review the stock markets of the 1970s)

Too little emphasis is put on how to generate CAGR (Compound Annual Growth Rate). Most people just assume that the CAGR will be there. Portfolio Management is CRITICAL.

Want to see what a financial plan from VMG looks like?

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