Developing a retirement plan will allow you to one day walk away from your job and have complete control over your time. But getting there often takes years of planning and saving, and there are many important details to consider. Here are five ways to simplify the retirement planning process.
Focus on what you can control. Estimating a rate of return, even a conservative one, is always fun because you can calculate the large number your portfolio will grow to after a few decades of compounding. The problem is that no one knows in advance what their return will be. Plus, you will probably earn different returns every year, making the guess even harder to nail down. That’s why it’s much better to set goals based on what you can control. You get to decide how much of your salary you put in a retirement account every year. You can also make an effort to find savings in other sections of your budget and add that money to your retirement savings. Let the market do its thing. Spend your time working toward goals you can actually achieve.
Don’t chase the latest fad. Everybody loves to argue that a certain strategy is the way to go. But any investment can seem appealing if you cherry pick the right time period. The problem is that most people change course to chase the latest fad after that investment has already gone up. Remember when many people were touting the virtue of more bonds in 2009 and 2010, after stocks had already crashed and were on the verge of a multi-year bull market? Now everyone is talking about dividend stocks, even though the market has already tripled in value. Markets go up and down, and it is common for an investment to perform very well after it has suffered a prolonged period of underperformance. There is more than one road to investment growth, but it’s important to stick with a route long enough to reap some rewards. If you truly have to change course, then consider changing after you’ve waited long enough for the strategy to shine again. The worst thing you can do is to jump from hot strategy to hot strategy, because that pretty much guarantees paying too much in taxes and severely underperforming.
Don’t delay saving. You don’t need to wait until you have the perfect investment plan to start building up your savings for retirement. The key is to start saving, because you will inevitably learn more along the way and are free to make adjustments. By accepting that you may not know everything about investing, you can more easily take that first step, knowing you will be able to continually improve on what you’ve already started.