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Take Your First Step in Retirement Planning

Why is financial planning so important?

We all have things we want to do in the future that will cost money; vacations, home buying, paying for college, retiring, and etc. Financial planning is simply figuring how much money you will need when you will need it, and taking action to get you there.

Retirement planning is a subset of financial planning, and maybe the most critical because:

  1. Social Security is becoming less solvent all the time. Read: Social Security by the Numbers and Social Security Revisited: A Plan to Fix It
  2. Most corporations no longer offer defined benefit retirement plans, and many companies have terminated the plans that they offered at one time.

You are truly on your own to fund your retirement; no one is coming to help you.

So, the first step in retirement planning is to get a handle on personal finances. We published some ideas on how to do that in 1992, which you can find here Personal Finances (Maxims Part II). Essentially, analyze your current assets and liabilities and work to manage your debt.

Once you have a balance sheet and a plan for managing your debt, create an income statement showing what money comes in and what money goes out (either by spending it or by saving it). This will help you understand what it costs you to live today, doing the things you are doing today.

And finally, on the third sheet of paper, write down all the goals and hopes and dreams you have for the future. What is all the saving and investing for? What’s your money for? If possible, mark down the date by which you want to achieve that dream, and how many dollars that dream costs today.

With those three sheets of paper, you have a pretty good idea of where you are and where you want to go. The rest is just coming up with a plan for getting there; creating the roadmap from A to B, and with flexibility about changing the route along the way due to detours, roadblocks and accidents.

Retirement Plans Can’t Sit on a Shelf

Like any good road map, the plan has to be taken off the shelf and referred to frequently to ensure you are staying the course.  Changes in inflation, interest rates, investment returns, legislation, and tax policy can all create obstacles and impact your ability to realize your dreams.  They have to be monitored and adjusted for as they change.  Checking your assumptions, looking for the assumption you don’t realize you are making, and making necessary course corrections are all part of IMPLEMENTING your plan.  Retirement or financial plans written over a decade ago have to be reviewed because conditions have changed.

Retirement Planning is Important

It is essential to have a plan and a flexible attitude for moving forward and getting advice.  It may seem daunting to talk to an advisor, but starting with a financial or investment advisor that comes recommended by people you know, trust, and respect is a great place to begin. It’s important to save for the future. It is important to save into an emergency fund. It’s important to review your retirement plan with an advisor. There is a lot to do to manage the long game, and there are no shortcuts to getting there. The key is to do the work so you can be comfortable with your savings and investments. Take your first step in retirement planning today!

We would love to talk with you about your retirement plans and aspirations for an enjoyable retirement.

The opinions expressed are those of Muhlenkamp and Company and are not intended to forecast future events, guarantee future results, or offer investment advice.

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