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Monday, November 11, 2013

Retirement planning 101: Creating a retirement blueprint

Financial planning includes preparation for retirement
Retirement planning tools assist in creating a blueprint
Planning for retirement can be a very daunting task. You know that you want to be able to have a comfortable retirement. You know that you're willing to make certain sacrifices now so that you can live more comfortably in the future. But that doesn't mean you know how to plan for retirement, or what steps to take to get you to your retirement living.

Lucky for you, you don't have to know all the steps on your own! Trying to plan your retirement completely on your own is like trying to build a home without an architect. Think about it this way. Would you ever try to create a blueprint for a home on your own? Absolutely not! You don't know all of the details that go into building a home. You don't know the specific measurements, laws, and details that go into creating a blueprint for a home. You also don't have access to the tools or education that would best help you create a successful blueprint.

So it is with retirement planning. Just like you wouldn't build a home without a professional blueprint, so also you shouldn't try to create your own retirement blueprint. Doing this can lead to stress and heartache, not to mention a possibly incomplete or unsuccessful plan for retirement, and a possible unsure foundation when it comes time for you to retire.

It is always smartest to work with a professional when you are planning your retirement. But to get you started and help you better understand what to expect with a successful retirement plan, here is a good start or foundation for your retirement "blueprint:"

1. Take the necessary measurements (measure your needs)

How much income will you need when you retire? When creating a blueprint for a home, an architect will take a look at all of the numbers, as well as how each of them correspond with each other. They will take a look at total square footage, how many rooms are desired, the individual measurements of each room, etc. You will need to do the same thing with your retirement plan. Ask yourself the following questions:
  1. When do I plan on retiring?
  2. How many years will I need to live off of my retirement income?
  3. How much money will I need to have in my "nest egg?"
  4. How many years do I have until I retire?
  5. How much money do I need to save each year/month in order to save up the needed money?
Asking yourself these types of questions and others will help you to better understand the numbers associated with your retirement plan. Of course it helps to get the assistance of a professional retirement planner with this process, because they know how to factor in things like current vs future cost of living, interest earned on a retirement account, inflation, etc.

2. Use the right tools

As we discussed in the intro, most people would never attempt to create a blueprint for their home without professional help. Even those with proper training make sure to use the right tools. So, don't make the mistake of planning out your life without the proper tools & resources.

Whether you decide to hire a professional to walk you through the steps of creating your retirement blueprint, or you feel you have the education necessary to enable you to create an appropriate plan, make sure you utilize as many retirement tools and resources that you can get your hands on. Things like retirement calculators, asset allocation evaluators, and retirement budget worksheets can all prove very valuable when coming up with your plan.

You will also want to make sure to utilize the right tools when saving for retirement. Do your research or consult with a retirement planner to know which types of accounts you should be using to save your money for retirement.

3. Follow your blueprint and make adjustments as necessary

Once you have your blueprint set up, it is extremely important to follow it! Any home builder will take a look at a home blueprint and follow it very carefully. Not doing so would result in a house that looks entirely different than the plan at best, or one that completely falls apart at worst. The same thing can happen to your retirement plan if you don't follow it closely: best case scenario, you end up with a retirement living that looks very different than what you planned. Worst case scenario, you end up with a retirement living that just doesn't cut it.

Also remember that sometimes there needs to be room for necessary adjustments. Also remember that the earlier these needed adjustments are detected and accounted for, the better. If you decide you want to retire earlier/later, or live somewhere more expensive than you had initially planned, or you plan to hold a part time job into your retirement, or you plan on using some of your retirement funds to start a new business after you retire. 

All of these things will affect your blueprint greatly. So, work to detect and account for any of these types of alterations as early as possible. Also make sure to consult a professional any time any of these possible changes come up, so that you know you are making the most appropriate changes to your plan.

About the author: Jasmine has been writing about finacial planning and investing for years. In the past, she has trusted Blueprint Planning's SMSF advice to help her compe up with her own retirement blueprint.

Image license: 401(k) 2013, CC BY-SA 2.0

1 comment:

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