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Retirement Planning in Today’s Volatile Market

Retirement Planning in Today’s Volatile Market

Achieving retirement planning objectives is not as hard as considered by many people. Whoever coined the phrase “the only constant is change” may have had funds invested in the stock market. However, even though the market has had its recent ups and downs, there are still ways to ensure that your retirement planning can be a success.

It is important in doing so, though, that you have a good idea of how much you have, how much you will need, and how much further you have to go in terms of saving, investing, and properly allocating assets as you move closer to your retirement date.

Determine Future Living Expenses

While your likely retirement day may still be years away, it is never too early to approximate how much you may need for your everyday living expenses. After all, if you are not able to cover the basics, it may be necessary to continue working – at least on a part-time basis – in order to bring in the additional funds that are needed.

Therefore, some of the key expenses to consider are housing, food, transportation, and miscellaneous. You should also factor in a higher or lower amount of overall costs, depending on where you intend to reside in your golden years.

Retirement Planning in Today's Volatile MarketFor example, if you plan to remain in your current home – and if that home will be paid off – then your housing costs are likely to decrease. If, however, you have plans of moving to a cottage on the beach, it is possible that you may need to factor in mortgage, maintenance, and additional housing expenses in your retirement budget.

Add In Additional “Wants” Costs

When coming up with an approximate amount of living expenses in retirement, you not only need to consider your essentials, but also the extras. These may include the cost of travel, the mortgage on a vacation home, or the payments on a new “toy” such as a boat or RV.

In this manner, think of your living expenses as income needs, and your additional non-discretionary expenses as “wants.” This way, once all of your expenses have been added together, you will have a much clearer idea of just how much retirement income you will need.

Properly Allocate Assets

As you move through the stages of life prior to retirement, it is also wise to properly allocate the savings that you have into certain types of assets that will best serve you at your particular life stage.

Therefore, in your retirement planning, you may opt to work with the “asset allocation pyramid.” Here, there are essentially five levels – or classes – of assets. These run from the safest level at the bottom, or foundation, to the most risky investments at the top.

  • Level 1 – Cash & Cash Equivalents – This level of the asset allocation pyramid includes the most safe type of savings and investment vehicles, such as cash, money market accounts, and high-quality fixed income securities. These vehicles are also considered liquid and virtually risk-free. However, even though these options all offer a form of safety, having too much committed to this area could represent lost opportunity, as the returns on these vehicles at best just match the rate of inflation.
  • Level 2 – Income – The income level of the asset allocation pyramid provides higher yields than those found on Level 1. These investment vehicles typically offer either fixed interest or dividend income payments. These investments include bonds, bond mutual funds, CDs, preferred stock, and fixed annuities.
  • Level 3 – Growth & Income – The growth and income level will add a bit more risk to your overall portfolio than the vehicles in the first two levels – however, it can also offer the opportunity for higher return. This level may be comprised of utility or blue-chip stocks, growth and income mutual funds, convertible bonds, and REITS (real estate investment trusts).
  • Level 4 – Growth – The growth level of the pyramid will generally possess much higher price volatility than the first three levels. However, these vehicles – inclusive of growth stocks, growth mutual funds, unit trusts, and variable annuities – have historically provided investors with greater returns than income or growth and income vehicles.
  • Level 5 – Aggressive Growth – This top level of the asset allocation pyramid includes options such as emerging market mutual funds, small cap stocks, aggressive unit trusts, and sector funds. These vehicles are typically considered to be much more risky than investments at the lower levels. However, they may also provide the highest return.

Overall, when conducting your retirement planning objectives, it is important to have a good mix of both safety and potential for growth. This should help you to achieve your retirement savings goals, and at the same time offer an ample amount of safety for your principal.

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