All Things Financial Planning Blog

Mention the word retirement, and for most people, an image immediately comes to mind. That image is usually different for many of us. For some it is sailing around the world, visiting grandchildren, playing golf or perhaps giving time to your favorite charity. As different as some of these images may be, there is one common underlying thread. That thread is freedom.

As a financial planner, when I work with clients, one of the early steps in the financial planning process is to “paint a picture” of their future. Once we have an idea of what the desired picture looks like we can go about designing a plan that provides the freedom to live those dreams. Now let’s spend a little time looking at some common issues on the road to ‘retirement freedom’ at different life stages.

20s & 30s

Typically at this age we’re just starting out and the world is our collective oyster. If you were like me coming out of college, you owned two things, a lot of time to save but not a lot of money to do it with. Quite often I think of a quote attributed to Albert Einstein. “The most powerful force in the universe is compound interest.” This quote is so true. If you want to achieve ‘retirement freedom’ at age 65, assuming you can feel free with $1 million after tax, a 25-year-old would need to save about $500 per month and earn 8 percent on her investments during that time-period. Waiting until you turn 40 almost triples the required savings. There is also a time-period where you can typically afford to take on a little more risk in your portfolio. Just be sure to do so wisely.

40s & 50s

At this life stage many of us are in our peak earning years but quite often have more responsibilities to handle. Perhaps you are concerned about paying private school tuition, saving for college, paying for a wedding or helping provide for elderly parents. If you haven’t saved much toward ‘retirement freedom,’ get started. Now! A few things to keep in mind here are that you want to get as precise as you can with assessing your financial needs in retirement. Just how much is it going to take to live the life you want? Typically you can still handle some risk in your portfolio just don’t go overboard. Keep in mind there may be more expenses in retirement than you currently deal with. Don’t forget to think about the cost of things like medical insurance, if you currently receive it as an employee benefit.

60s & 70s

We are either in or on the doorstep of retirement. One of the biggest concerns that I hear from clients at this stage is making sure that they have enough resources to live a life of dignity without being dependent on others. Here we need to be even more careful with managing our resources. Now may not be the time for tremendous exposure to assets that are highly volatile. There is usually room in the portfolio for stocks and the like if for no other reason than to stay ahead of inflation. Be realistic about returns on investment. You simply can’t take out 10 percent every year and expect it to last forever. Current experts suggest that we can only take out about 5 percent to have a high likelihood of not running out of money.

As a society we are living longer. In fact, more than half of babies born today are expected to live 100 years. That means that for many of us we can expect to spend many years in some state of retirement. Making good choices at every stage of life greatly enhances your chances of spending those years living the life you choose.

Lee Baker, CFP®
President
Apex Financial Services
Tucker, GA