How to Develop an Investment Plan for Retirement


The need to invest wisely doesn’t stop when you amass enough money to retire. You must continue to make smart investment decisions throughout your retirement years.

Here are some components of a successful retirement investment plan.

Figure out how your investments will impact the lifestyle you desire. Daydreaming is not only desirable, but also essential to determine how you want to enjoy your post-career life. Different goals dictate different investment strategies. For example, if you enjoy researching investments and making personalized decisions to try to boost your returns, then active investing may be for you. If you want to capture market returns without doing a lot of additional work, consider index funds. Similar considerations are necessary for managing rental properties. You might be able to build a portfolio of rental homes to generate retirement income, but there may come a point when the rental income is not worth the additional hassle. Think about how involved you want to be with your investment portfolio during your retirement years and the long-term repercussions of the investment decisions you are making now.

Come up with a withdrawal strategy. Once you envision a lifestyle worth retiring to, it’s time to estimate how much that way of life is going to cost. With that number, you can calculate how much you will need to save to pay for 20 or 30 years of retirement. You can use a rule of thumb like the 4 percent withdrawal strategy to get an idea of how much you can safely spend each year. Just remember that these rules of thumb are only guidelines. Very few people will be able to determine a spending amount at the onset of a multi-decade retirement and expect yearly expenses to fluctuate with the official inflation rate.

Consider the tax consequences. It’s a good idea to know how you will withdraw funds from your portfolio. Think about whether you want to take money out of your taxable accounts first, and when you will be withdrawing funds from your tax-deferred accounts. While you may be able to spend interest and dividends at first, many people will eventually need to select the investments they are going to liquidate to pay for living expenses. You can certainly change your mind later on in retirement, but it’s important to at least have an idea of how you will take money out before you actually have to do it in order to minimize tax consequences.

Consider having a professional help you draft the plan. Not every advisor will be able to earn you enough in excess returns to overcome the fees charged. But an advisor can still be helpful in a variety of other ways. A financial planner can motivate you to take action to invest, when you otherwise would be sitting in cash for too long. He or she can also help you to stay the course when the market is crashing, so that you will benefit from the subsequent recovery. We often feel emotional about our money, and a rational perspective from the outside can help.

Accept that your plan will change. Making sure your plan can stand the test of time is important. But any financial plan you establish will also need to be changed constantly. You may have grandchildren or develop an illness. These will all change how you want to spend your retirement resources. The investment landscape can fluctuate, causing you to tweak the way you have the portfolio invested. You may even view money differently as you age and your assets increase. It’s common for people to become more charitable as they age. Each lifestyle change will have a material impact on your spending, which will require adjustments.


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