Plan the Future of Your Retirement

You’ve come a long way since you started this tutorial. First, you had to find and itemize your assets. Next, you learned how to discover your investment objectives and compare them to your portfolio to see if they matched. Lastly we showed you how to effectively consolidate your assets in order to streamline your planning. Now we will take one final step forward and look into the future to see what changes need to be made. 

Calculate Your Retirement Needs

If you analyzed your portfolio and discovered that it either didn’t fit your objectives or that some of your accounts or investments need to be replaced or upgraded, you need to do some research to find suitable replacements. More important, you need to take figure out how much money you think you will really need to for retirement. You can get a basic idea of this by making the following computations.

1. Look at your current budget. Start with how much you spend now and estimate how that might change during retirement. Would you still go to the ballpark every other weekend? Would you still eat out as much? How much more will you have to pay for medical and dental care? Try to come up with at least a rough estimate of what you think your monthly budget will look like after you stop working.

2. Project that budget into the future. Use a time-value-of-money calculator and project what that monthly budget amount will be in X number of years when you retire, assuming a given rate of inflation.

3. Estimate how your savings will grow. Look at your investment portfolio and use the calculator to estimate what your savings will grow to by your retirement date and how long they will last at a given (most likely lower, due to a more conservative portfolio allocation) rate of growth and distribution.

4. Include Social Security. Get your latest benefit statement from the SSA and be sure to put those numbers into your projection as well. (See Social Security’s Role in Your Retirement Planning.)

Once again, a financial planner can be of assistance here. If all you need is limited advice, a fee-based financial advisor might be adequate (see How to Find a New Financial Advisor Who’s Right for You). However, if you expect to be effecting some transactions, a full-service broker or planner may be a better idea. (For more on the difference, see Financial Advisor vs. Financial Planner.)

If you're a couple, you obviously need to go through this whole process with both of your resources and look at how well they mesh together. You also need to review your individual time frames for retirement; one of you may be hoping to retire sooner than the other one.

In either situation, this could be a good time to do a comprehensive financial plan, especially if you feel there’s a good chance that your earnings and circumstances will stay relatively stable between now and retirement. Planners have sophisticated programs that can run a variety of hypothetical scenarios showing what will happen if things go the way you think they will – and what could happen if they don’t.

It’s wise to pay for a few different scenarios, including one that projects an outcome under dire economic conditions and one that shows how things would play out if you were to become disabled. If you’re a do-it-yourselfer, try www.futureadvisor.com. Running these numbers, either on your own or with professional assistance, will help reveal what you need to do between now and retirement in order to adequately provide for yourself and possibly your spouse.