retirement

The Key to Setting Retirement Goals? Details

You know what you want out of retirement, right? Are you sure you know EXACTLY what you want? Having detailed goals is essential to retirement planning.

“A goal properly set is halfway reached.” – Zig Ziglar. We all have retirement goals, but unfortunately, we tend to be very vague and noncommittal about them.

Most investors will tell their financial adviser that they’d like to “retire comfortably” or “maintain their current lifestyle,” but what does that really mean? Many advisers tend to avoid the issue of goal setting, as it places greater emphasis on measurable milestones and thereby accountability to their clients. Investors, too, tend to undermine this process, as they also have a habit of being inexplicit to minimize future feelings of guilt for not reaching their goals.

Whether you are already retired, nearing retirement or in your prime earning years, setting specific and quantifiable investment goals is paramount to reaching them and critical to investment success (in the next column I will discuss why “beating the market” is a silly and meaningless goal).

Step One: Ask Yourself This Important Question

Start with asking a very simple question with a very complex answer: “What do I want?” Then write down the responses (if you have a spouse or significant other, they should go through the same exercise and then you can compare notes).

Once you’ve identified these specific goals, determine what you expect these goals to cost. For example, if your goal is to travel three times per year to different continents and pay off your home within five years, determine how much that will cost. Don’t forget to account for inflation. A ballpark of 3% annually is a good starting point.

Step Two: Consider Costs

Next list your lifestyle choices and their costs, i.e., what does day-to-day living cost. Estimate how much cash flow your portfolio (excluding other income) will need to generate to support this.

By now, you’ve probably surmised that your dreams and aspirations are very expensive and that your portfolio would have to generate monstrous returns for you to be able to achieve your goals, and that’s OK.

Step Three: Prioritize

Now comes the hard work! It’s time to prioritize goals and have contingency plans in the event certain returns are not achieved in a given period of time.

For instance, let’s assume you have $2 million in IRA, 401(k) and other investments, your $750,000 home is paid off and you are receiving $2,000 per month in Social Security. You have estimated that your day-to-day expenses at $10,000 per month. This means that your portfolio will need to generate $8,000 per month ($96,000 per year) in cash flow for you to meet these expenses. This amounts to a near 5% withdrawal rate, which by most standards is viewed as unsustainable over long periods of time without depleting principal.

Remember, if you are 65 there is a better than 50% chance that either you or your spouse will live into your 90s, and that means that inflation and unexpected costs will have an increasing impact, and you have yet to travel the world or do any of the other things on your goals list.

Prioritize and be innovative – what if in 10 years you take out a reverse mortgage on your paid-for home? That $250,000 cash infusion changes the math to a withdrawal rate of just over 4%. In simple terms, have aspirations and dreams, prioritize them and then match up their costs to your assets.

It’s a lot of work, but you’ll be able to sleep soundly knowing you have a well thought out plan and have accounted for predictable variables.

The Rest of the Series

This column is the first in a six-part series on investor education.

  • Column 1: Understanding your goals
  • Column 2: Why benchmarking to the S&P 500 is not a good strategy
  • Column 3: It’s about cash-flow, not returns
  • Column 4: How much are you paying for your portfolio?
  • Column 5: 5 critical questions to ask your financial advisor
  • Column 6: ‘Senior Inflation,’ the not so silent retirement killer

About the Author

Oliver Pursche, Investment Adviser Representative

CEO, Bruderman Asset Management

Oliver Pursche is the Chief Market Strategist for Bruderman Asset Management, an SEC-registered investment advisory firm with over $1 billion in assets under management and an additional $400 million under advisement through its affiliated broker dealer, Bruderman Brothers, LLC. Pursche is a recognized authority on global affairs and investment policy, as well as a regular contributor on CNBC, Bloomberg and Fox Business. Additionally, he is a monthly contributing columnist for Forbes and Kiplinger.com, a member of the Harvard Business Review Advisory Council and a monthly participant of the NY Federal Reserve Bank Business Leaders Survey, and the author of "Immigrants: The Economic Force at our Door."

Most Popular

Your Guide to Roth Conversions
Special Report
Tax Breaks

Your Guide to Roth Conversions

A Kiplinger Special Report
February 25, 2021
The 25 Cheapest U.S. Cities to Live In
places to live

The 25 Cheapest U.S. Cities to Live In

Take a look at our list of American cities with the lowest costs of living. Is one of the cheapest cities in the U.S. right for you?
October 13, 2021
Gen X: How to Make Sure Your Future Self Remains Funded
personal finance

Gen X: How to Make Sure Your Future Self Remains Funded

If you’re a Gen Xer, like me, now might be the right time to talk to a financial professional to learn more about how to adjust your retirement planni…
October 20, 2021

Recommended

Boost Your Retirement Savings for 2022
Financial Planning

Boost Your Retirement Savings for 2022

If you were self-employed or had a side hustle in 2021, you can save even more in a tax-advantaged account.
October 26, 2021
Don't Get Too Hung Up on a Retirement Savings Number
retirement planning

Don't Get Too Hung Up on a Retirement Savings Number

There's tons of advice about how big your nest egg should be for retirement but focusing too much on a single figure can lead to complacency.
October 26, 2021
The Best Fidelity Funds for 401(k) Retirement Savers
Investing for Income

The Best Fidelity Funds for 401(k) Retirement Savers

Fidelity funds are renowned for their managers' stock-picking prowess. We rate Fidelity's best actively managed funds that are popular in 401(k) plans…
October 25, 2021
From EBRI's CEO: What's on Retirees' Minds
Empty Nesters

From EBRI's CEO: What's on Retirees' Minds

Retirees feel more comfortable spending from steady sources of income rather than tapping their nest egg.
October 25, 2021