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Invest the Time to Accurately Plan for Retirement

It’s crucial to understand how well prepared you are for retirement. There are hundreds of retirement planning software packages available claiming answer this question for you.  Determining your readiness for retirement is complex, involving many variables and calculations.  A retirement planning software solution that meets your retirement planning situation is one option.

Invest the time to select the best software for your needs.  One problem with many on-line retirement planning software programs is they are too simplistic; the default assumptions may not be appropriate.   They may be easy to use but the results don’t accurately reflect your situation.  On the other hand, more elaborate programs require a significant investment of time to fully understand how the program operates.  Once you understand the nuances of the software and adjust the variables, a careful review of the results is necessary to be sure they are reasonable and accurate.

The process of retirement planning can help you get organized and think about the future.    It can provide a good picture of where you are, and the actions needed to achieve a comfortable retirement.  However, the results are only as good as the information you feed into the program.   Keep in mind that even with excellent, well thought out assumptions it’s just an estimate because it’s impossible to accurately predict the future.

Due to the inherent uncertainty in retirement planning, use conservative projections and run various scenarios to see your alternatives.  Review your retirement plan on an annual basis and adjust along the way.

Some primary variables that go into retirement planning include the current value and make-up of your portfolio, how much you plan to invest before retirement and your projected life expectancy.  There are also several factors that will change over time or vary based on the type of assets you hold.  These include your projected rate of return, the rate of inflation, your tax rate and your projected expenses in retirement.  Give these factors some serious consideration.  You may be in retirement for a long time and a small error stretched over many years can have a huge impact on your bottom line.

Some considerations to include in your planning include using a rate of return that’s more conservative than the historical average, to help compensate for market volatility.  Gradually reduce your return in the later years of retirement, if you anticipate transitioning to a more conservative portfolio.   Ensure the life expectancy in your software is 95 -100, there is a good chance that at least one spouse will live into their mid-nineties.  Don’t automatically assume your expenses will drop upon entering retirement.  Many retirees spend more in the first 10 to 15 years of retirement and significantly less in their 80’s.

Using an on-line calculator can be a good option but if you don’t have the time or interest to delve this deep into your software, consider using a fee-only Certified Financial Planner to assist you.