Planning for retirement can be a significant undertaking. While the principles of successful retirement planning are easy to understand (e.g., begin saving early in life, try to max out your tax advantaged contributions each year, and invest according to your personality and risk profile), reaching your retirement goals can often be quite a challenge.
There are plenty of important questions you should ask you financial advisor, of course, but first you need to ask yourself a few questions:
When do you want to retire? This is probably the first question that every individual considers when they begin thinking about how they’re going to handle their own retirement. Asking yourself this question is important because the longer you have between now and your target retirement age, the more options you’ll have on how to get there.
What do you want your retirement to look like? The next question to ask yourself is what you want your retirement to be like when you reach that age. Where do you want to spend your retirement years? Do you want to relocate to another part of the country (or to another part of the world)? Do you envision your retirement as a luxurious one, or a more modest one?
Do you plan to work during retirement? It’s a relatively recent development that retirees would consider working in any capacity once they reach their retirement years. But for many, the prospect of not having the structure of gainful employment – even if it’s just on a part time basis – can be a significant negative. Note that this need to be gainfully occupied can be accomplished through volunteer work, consulting or a number of other methods.
Am I doing everything I can? Tax-advantaged retirement plans such as IRAs and 401(k)s have annual contribution limits. It’s important to try to contribute the maximum allowable amount each end every year, because if you fail to do so you won’t be able to contribute more in later years to make up the unused amounts.
Once you’ve asked yourself these baseline questions, you can then meet with your broker or investment advisor and consider the following:
What is the state of your current portfolio? In order to evaluate your current retirement plan, you must have a solid understanding of your current portfolio. When you consider all of your accounts together (including assets and savings that are held in non-retirement accounts), do you understand how your investment risks are allocated, and are those risks appropriate for your investment approach and tolerance for risk?
Does your current portfolio require adjustment? Once you understand the composition of your current investment portfolio, you can discuss with your advisor whether you need to make any adjustments with respect to either your current assets, or to future amounts that you’ll contribute to your accounts.
Keep in mind that your situation will change over time, so you’ll want to periodically ask these questions again from time to time.