The retirement journey: Factors to consider when making a plan

Regardless of how old you are, the time to start thinking about retirement is now. Starting to plan for retirement while you’re still young will not only provide you with an added safety net in case things go wrong in the future, but also potentially allow you to retire early.

However, setting up a retirement plan is not as simple as putting aside a bit of extra money every month. It requires much more careful consideration of several factors.

Factors to consider when saving for retirement

Some key factors anyone should include in the foundation for their retirement savings plan are their current age, desired retirement age, income, expenses and desired lifestyle. Of course, those who live a more lavish lifestyle must expect to save more to continue their lifestyle in their retirement. But it’s also important to take into account other costs that may arise in your older age, such as life expectancy, inflation, investment returns, health care costs and any outstanding debts.

A common question many financial advisors are asked by their clients is when they can retire, but that is an answer determined by their financial readiness. Although the anticipated median retirement age in the United States is 65, many individuals may seek to retire early, and others may find they have to work even later to achieve the level of financial security they need to enjoy their retirement.

Some considerations that must be made when determining an ideal retirement age include debt and income levels, physical and mental health, expenses necessary to fund their passions and goals, as well as factors such as Social Security benefits and long-term care expenses. By working with an experienced financial advisor, individuals will create a personalized financial plan that will allow them to make more informed decisions about when they could retire.

Maximizing returns on your retirement portfolio

One of the main parts of a retirement plan is asset allocation. Financial advisors will work with clients to determine the mix of investments for their portfolios. The goal is to find the right balance of risk and returns to meet the client’s individual needs. A financial advisor will look at the client’s risk tolerance, time horizon and income requirements to create an allocation that allows them to meet their financial goals while remaining appropriate for their circumstances.

In addition to the allocation of assets, the returns an individual receives on their retirement portfolio can be significantly influenced by their tax exposure. Tax-advantaged accounts, Roth conversions (or alternative Roth conversions) and strategic tax-loss harvesting can help offset the gains from a tax standpoint. Other strategies, such as avoiding mutual funds in favor of stocks and exchange traded funds and leveraging available tax credits and deductions, can help individuals maximize their returns for retirement.

Inflation is also a major variable that individuals must consider when determining how much to save for retirement. Advisors should include inflation assumptions in their projections, as this will help prepare individuals for a future in which their dollars may not stretch as far as they do today. Additionally, advisors will suggest investments in assets that historically outpace inflation and educate their clients on inflation-adjusted benefits such as Social Security and pensions.

The final factor a financial planner will consider when determining a client’s retirement plan is their Social Security benefits, as most average Americans still count on their Social Security benefits as a reliable source of income in their retirement years. To optimize their Social Security claiming strategy, financial advisors assess various factors such as age, spousal benefits, income needs and longevity.

Using this information, advisors can guide clients toward the most financially advantageous and personalized approach to maximize their lifetime benefits. However, things can change so, especially for younger savers, counting on Social Security as a cornerstone of your retirement may not be advisable. Instead, it’s wise to look at these benefits as icing on the cake, rather than looking to receive a specific dollar amount.

Planning for retirement should be an exciting time to begin setting yourself up for a future in which you can kick back and enjoy some hard-earned relaxation. However, navigating a retirement plan can be difficult with the number of variables and factors one must consider when setting up a plan. With the help of an experienced financial advisor, you can better understand how much you need to save to not just survive but thrive when it’s time to hang up your work clothes for good.

 

Bryan Cannon is the CEO and Chief Portfolio Strategist of Cannon Advisors. With more than 25 years of investment and financial planning experience, Cannon is a seasoned stock market technical analyst closely following overall market trends, market conditions and specific equities. He has recently been featured in reports by The Wall Street Journal, CNBC, U.S. News & World Report, Investors Business Daily, CBS News, Yahoo News, Business Insider, BizJournals and TheStreet.com. Contact him at [email protected].

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