By Jannet Smith 
Introduction
Retirement is everyone’s dream at old age freedom and traveling and living passions. Definitely and it can quickly turn into a nightmare if there is no planning. The essay argues for GoalBased Retirement Planning and where basically your aspirations are the centerpiece. We will cover defining your dream retirement and assessing your finances and discovering the gulf between needs and income. Learn about powerful savings vehicles and maximizing employer contributions and putting a growth oriented investment strategy in place.
Goal Based Planning
Goal based retirement planning turns around the traditional model of financial planning. It gives prime importance to the kind of life one wishes to have and rather than just focusing on a certain dollar figure. You’re talking about a time profile of rather well defined retirement dreams and articulating them and using the vision as a driver for financial decisions.
It’s time to go into detail on this all important first step
Imagine your ideal life
Retirement is a tailor made proposition. Can you picture yourself strolling on the world’s finest beaches and traipsing through exotic lands and or giving back to a cause that resonates with your heart? Maybe the thought of more time spent bonding with loved ones and pursuing a long wished for creative interest and or running a small business gets you excited. Don’t be afraid to list as many details as possible and no matter whether they seem big or small.
Think About Daily Life
Besides a few big ticket items for adventure and what will your daily retirement living look like? Will you own a home or rent an apartment and or even downsize? Are there any healthcare needs that you’ll have? Will you travel frequently and or are you homebodies? All that will impact your ongoing expenses.
Inflation How to Account for It
Just remember and life becomes more expensive with time. Consider inflation in your estimate of future expenses.
Flexibility First
Life has a way of pitching curveballs. You should and no doubt be clear about what you envision and but it’s quite sensible to do so with flexibility. Consider possible changes in health and family needs and or the economic climate.
It’s important to be very thoughtful and detailed in an attempt to define just what your retirement dreams really are. After some roadmap has been set in front of a person and it will motivate his decisions on saving and investments. This will give them vision and the guiding light for retirement planning.
Estimating Your Retirement Expenses
Estimating retirement expenses is one of the most important parts that define successful goal based retirement planning. It can bridge the chasm between the lifestyle you want to live and what your finances can actually do. This is how you should attack this very important step
Categorizing of Your Expenses
Housing
This will likely be your biggest expense. Will you stay in your current house and downsize and or perhaps move to a lower cost of living area? Consider possible property taxes and homeowners insurance and maintenance expenses.
Transportation
Are you going to have your current car and switch to a gas guzzler and or even ride public transportation? Estimate fuel and insurance and servicing and potential travel expenses.
Food and Groceries
Estimate grocery needs and eating out. Will you cook regularly at home and or go out to eat often?
Utilities
Typically ongoing expenses include electricity and water and gas and refuse removal and the internet.
Debt Repayment
Can you be debt free by retirement? Otherwise now is the time to bring in any loan payments that you will still be making.
Taxes
You’ll want to figure out what taxes you may need to pay in retirement. It may include income and property taxes.
Expenses of Lifestyle
Now it is time to think about your dreams It may include traveland hobbies and entertainment and education and or some other activities that enhance your life
Monitor Your Spending Today
Take a run through of your bank statements and credit card bills to pick up what you are spending today. It becomes a baseline for projection purposes.
Cost of Living Adjustments
In case you were having plans of moving during retirement and compose an estimate of the cost of living where you desire to move as compared to where you are staying at the moment.
Don’t Be Afraid to Adjust
This is an Estimate
There is no crystal ball that will predict your future. Your first estimates can be based on circumstances beyond your control.
Review on a Regular Basis
Go over the estimates of expenses from time to time and even more when you are near retirement. There may have to be alterations in lifestyles or economic conditions.
Having such a well outlined and realistic picture of your retirement expenses will enable you to gain valuable insight into setting attainable savings goals and investment strategies. A little planning at this stage can mean a secure and fulfilling retirement for you later on.
Current Financial Situation
Income Streams
Income Sources Salary
This is likely your largest current income. Think about your runs and the potential salary increase in the future. Are you near a promotion or nearing the peak and as far as pay goes?.
Other Sources of Income
Are you earning from investments and rental income and or perhaps drawing social security? Add this while accounting for sources of income.
Expenses
Fixed Expenses
These are those expenses that happen every month and are orderly and are relatively constant in amount. Examples of these would include rent/mortgage and utilities and car payments and insurance premiums and etc. You would want your bills and statements in order to track all of that accurately.Items that might make up this category include food and dining out and entertainment and transportation.
Debt Obligations
List all your current debts balances on your credit cards and student loans and or any outstanding mortgages and the interest rates on each and along with the minimum monthly payments.
Savings and Investments
Emergency Fund
Is there a liquid and easily accessible emergency fund for unexpected expenses? Your goal should be to have 3 to 6 months of your living expenses in a liquid account.
Retirement Savings
Review all the retirement savings accounts currently open for you by looking into IRAs and 401(k)s and or other plans your current or previous employer may offer. Note the balance and contribution amount and investment allocation.
Other Investments
Any other investments that you have in stocks and bonds and or real estate need to be noted down with their current value and what return you project to earn in the future.
Assets and Liabilities
Assets
These are the things you own and have value such as your home and car and or any other investments. Note the current market value.
Liabilities
All your outstanding debts and whether credit cards and mortgage and or even school loans. Take the total amount still owing on each.
Now Put it All Together
Calculate Your Net Worth
Total liabilities subtracted from total amount of assets. That gives you a snapshot of where you are as a whole regarding your finances.
Analyze Your Spending
You may be able to cut back on problematic areas of spending. Can you cancel any subscriptions and dining habits and entertainment costs that you currently have?
If the ratio is big and it can surely impact how much you may be able to save for retirement.
Closely examining your current financial situation will provide you with information that will help drive your retirement planning decisions. Such self evaluation empowers an individual to set practical goals and choose the right saving vehicles and develop an investment strategy in line with his tolerance to risk and time horizon. A solid financial base is necessary for building a secure and fulfilling retirement.
Identifying Your Retirement Savings Gap
One of the important concepts used in goal based retirement planning is that of the retirement savings gap. It is the difference between how much money one will actually need to live the lifestyle one envisions for old age and how much one has been saving and is on track to save before retirement. Thus it enables pinpointing this gap and developing a clear roadmap toward filling this hole on the pathway to financial security in old age.
Calculate the Gap
Estimate Your Retirement Expenses
This will involve an overall look at what you are likely to pay for in retirement and from housing to healthcare and transportation to food and entertainment and even possible long term care expenses.
Project your future income streams. Consider Social Security benefits and potential pension income and any other anticipated income from part time work and rental properties and or investments prior to retirement.
Calculate the shortfall
Your estimated retirement expenses minus all the income streams that you are projecting to have in the future. Thus anything remaining becomes a retirement savings gap. If the number happens to be positive and then you have a surplus otherwise and it will be a shortfall when it is negative.
Now what one really needs to understand is the gap.
Time Horizon
If retirement were imminent there would be less time to save and grow the nest egg further. In such a situation more aggressive means of savings or lowering retirement lifestyle expectations may be necessary for a larger gap.
Power of Compounding
Most of the savings gap can be offset by early initiation of saving and letting the money grow through compound interest and reducing it over time.
How to Close the Gap
Increase Savings
Take a closer look at your spending patterns at present and consider ways to cut down on expenses. Those savings could be put aside towards retirement savings. This can include an increased contribution percentage to employer sponsored plans or opening an IRA.
Maximize Employer Contributions
Many employers offer matching contributions to your retirement savings. Contribute enough to get a full match it is free money
Delay Retirement if Possible
A few more years of working give you the opportunity to further put more money into retirement savings and another set of years for compounded growth. Moreover it raises the number of years for which your Social Security benefits will accrue to.
Seek Professional Help
A financial advisor will help in properly tailoring advice to bring out a clear plan on how to close that retirement savings gap. They provide insights into your risk tolerance and recommend suitable investment strategies and ensure that your plan keeps in line with all your goals.
By calculating your retirement savings gap and then taking proactive action to close that gap and you are firmly in control of your financial future. Remember and the sooner you act to close this gap and the more time your money has to grow and thus the more secure you’ll be in retirement.
Grow Your Retirement Nest Egg
Another very important segment of goal-based retirement planning is investing for growth. It is the strategic allocation of retirement savings towards high return bearing assets. This can help your retirement nest egg beat inflation and grow adequately. There are many critical aspects that should be considered while formulating a growth-oriented investment strategy, as follows:
Understand Growth Investing
Equities:
Companies that are in a developing phase and are ready to witness a substantial rise in the stock price will give a high return, common in them. At the same time, they carry a level of risk. Small-cap stocks are stocks relating to small-sized, growing companies that have the potential to surge in growth but are generally more volatile than large-cap stocks.
Emerging Markets Stocks:
Stocks dealing with developing economy companies hold good growth potential, but with rising political and economic instability in those areas. Real Estate Investment Trusts (REITs): It invests in income-generating property giving the potential for capital appreciation besides the dividend income.
Growth with Balanced Risk:
Risk tolerance:
There is a need to be very honest with oneself in terms of taking risks. Growth investments for the most part have more volatility, thus their prices swing up and down by wider margins. Also consider the comfort level with potential losses before allocating a big portion of this in one’s overall portfolio.
Time Horizon:
The longer the time horizon left to retirement, the more risk that would be borne. Younger investors have a long time before retirement and thus have time to recover from a market downturn. Those close to retirement would prefer stability more than growth, and will hence allocate less to growth assets.
Investment Strategies for Growth
Index Funds:
These are passively managed, tracking a specific market index and offering investment diversification and a low-cost way to get exposure to growth stocks.
Growth Stock Funds:
These are actively managed funds that invest in a portfolio of mostly aggressively growing companies. However, they normally have higher fees compared to index funds. Sector Funds: These are funds invested in an industry sector, for example, technology, or healthcare, which gives them concentrated growth potential but also higher risk.
Dollar-cost averaging:
Investing a fixed amount of money in an investment at a regular interval, regardless of prevailing market price. It basically averages down the cost price per share and makes the influence of volatility in the market less.
Rebalance regularly:
Monitor your portfolio from time to time and rebalance in order to maintain the target asset allocation, thus aligning the risk profile with investment goals.
Professional advice:
A financial adviser can help you with a personally tailored investment strategy based on how much risk you can handle, your time horizon, and your overall financial goals.
While markets may fluctuate, time spent staying invested in a well-diversified, long-term-oriented portfolio can help you turn in a nice chunk of change for retirement over the long run.
Conclusion
Goalbased retirement puts you in the driver’s seat for financial control. Based on your retirement goals and your current status picture and a customized roadmap and you will be able to bridge that gap between your dream life and actual financial exigency.
Defining Your Dreams of Retirement
This gets you going with your financial decisions and a vision of how you want to retire.
Estimate Your Retirement Expenses An accurate assessment of your future expenses is critical to planning how much you need to save.
Update Your Current Financial Situation
Taking Inventory of your income and expenses and assets and liabilities gives you a baseline for your planning.
Project Your Sources of Future Income Counting on Social Security and pensions and giving a face to the income from other sources enables a composite view of your future.
Identify Your Retirement Savings Gap
Knowing how much you are falling short of what you will realize from your projected retirement income to what it will cost you to maintain your present lifestyle will help you devise ways of closing the gap.
Developing a Savings Strategy
The right retirement vehicles and contribution maximization and growth investing make up three critical elements in building your nest egg.
Maximize Employer Contributions
Drawing from employer matching programs is essentially free money enhancing your retirement savings.
Growth Investing
Placing a portion of your portfolio in growth assets will help your savings outperform inflation and reach its full potential.
Review and Rebalance Regularly
Depending on the progress it may be necessary to review it periodically and rebalance with a view to retirement goals.
Keep in mind that your retirement plan should change along with the changes in your life circumstances and financial situations. But taking a proactive and goal oriented approach can help to guide you along the path toward a secure and fulfilling retirement.
If Doubts linger in your mind and do not hesitate to get professional guidance from a financial advisor. They will be able to offer you custom tailored advice in your situation and help sail through the complexity of retirement planning so that your golden years turn out to be precisely what was envisioned.