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Financial Planning Basics

Every year in October, National Financial Planning Month is observed. With a solid financial plan, you can set short-term and long-term goals. You can estimate the amount of money you will likely need for college, health care expenses, and your retirement. You can plot a way to wind down your workaday life or exit your career with confidence. You can also get a good look at your present financial situation—where you stand in terms of your assets and liabilities, the distance between where you are financially, and where you want to be.

In light of this, here are some financial planning basics to consider:

The average retirement age is somewhere between 62 and 65. In order to retire by 65, you will likely need to have built up a sizable savings safety net by the time you reach your 60s.

A government analysis found that average Americans between the ages of 55 and 64 have accrued about $100,000 in retirement savings. That is actually not that much when you think about it. That sum would only translate into a $310 monthly payment if your money were invested in a lifetime annuity.

So, this is the time to take a careful look at your overall financial situation, and start making some projections about whether you will have enough money to stop working (and earning income) on the date you’ve targeted for retirement.

And don’t forget to factor in other possible sources of retirement income, such as an employer pension plan and/or cash value from a permanent life insurance policy, a reverse mortgage, or delaying Social Security benefits.

Set a Target Retirement Date

This will give you something to aim for, and with a date in mind, you can work backwards, and come up with milestones that you’ll need to meet along the way.

Plan Your Retirement Budget

One budgeting strategy is to plan on needing between 70 and 80% of your pre-retirement income during retirement. This is based on the assumption that you will no longer need to support children, you may have paid off your home mortgage, and you won’t have employment expenses like clothing, commuting, eating lunch out, etc.

However, these “savings” can easily be offset by unknown variables, such as inflation, and additional unplanned expenses, especially if you plan to live an active retirement lifestyle. The future cost of healthcare is an especially big unknown. If you want to travel extensively, entertain and eat out frequently, or participate in expensive hobbies during retirement, be sure to factor these costs into your retirement cost-of-living budget.

Over time, inflation erodes the value of your money and reduces your purchasing power. As a result, a dollar in 10 years will likely buy you less than a dollar today. What cost $1 in 1990, would cost you almost double that today ($1.84).

Adjust Your Asset Allocation

As you approach retirement age, it may be wise to begin shifting your asset allocation mix to lessen exposure to investments that may be more volatile in the short term, and adopt a more conservative approach.

The idea is to manage your savings and investments in a way that will help protect rather than grow your income and principal as you prepare to pass from the accumulation to the withdrawal phase of retirement planning.

Retirement Lifestyle

Many people enter retirement with no idea of how they will spend their time. Start thinking now about the activities and hobbies you want to pursue when you retire. It doesn’t really matter what they are, but the important thing is that you have a plan designed to keep your mind, body, and financial security in good health.



Material contained in this article is provided for information purposes only and is not intended to be used in connection with the evaluation of any investments offered by David Lerner Associates, Inc. This material does not constitute an offer or recommendation to buy or sell securities and should not be considered in connection with the purchase or sale of securities.

To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law.

Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.

These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable– we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

David Lerner Associates does not provide tax or legal advice. The information presented here is not specific to any individual's personal circumstances. Member FINRA & SIPC

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