While planning for retirement, many of us find ourselves focusing on particular numbers. We decide to retire at a certain age, and we decide to save a particular amount of money. It's much easier to work toward a goal when we can see an end point! However, we often find that our “retirement number” can change over the years. Don't get too attached to a particular age or retirement savings goal, because the following factors can make an impact upon your plans.
Future returns. When you initially decided upon a projected retirement age, you based that in part upon the date at which you expect your retirement plan contributions to earn a particular amount of money. In other words, you guessed at when you would reach your retirement savings goal. But because the market can be unpredictable, it's nearly impossible to know exactly when you will accumulate a particular amount of money. You can control your savings rate and your investment choices, but you can't make the market do exactly as you wish.
Inflation. We often assume that inflation will happen at about a 3 percent annual rate. That doesn't sound so bad, until you consider the fact that over 25 years, that means prices on almost everything could double! Now consider the fact that your original retirement plan was based upon today's budget, and you might not feel ready to live on a fixed income for two decades or longer! Of course, some people worry so much about inflation that they delay their retirements even more than necessary.
Budget. We all set our retirement goals based upon the cost of our expected lifestyles in retirement. But as we progress in our careers, we often find ourselves enjoying a higher standard of living. It can be hard to go back to a more frugal approach to life, so often we see that people delay their retirements in order to save and prepare a bit more.
No one is saying that you shouldn't set a goal for your retirement savings, or decide upon a date for your retirement. Just remember that these plans aren't set in stone, and you might be happiest if you can adopt a flexible approach to retirement planning.
Carstens Financial Group focuses on providing comprehensive asset management, estate planning and life insurance solutions. Allow us to help you secure your financial future.