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William Lako

I often talk about retirement goals. But what does that mean? Isn’t the goal “retirement?” Yes, but investors need to think beyond the day they can quit working. Saving without a goal is like stuffing money away, never looking at it, never knowing how much is there, and never knowing if it is enough.

Imagine your retirement. How old are you? What are you doing? Where are you living? Are you traveling to all the places you never had time to visit? Are you spending your days at a mountain cabin or beach house? Are you spending money on a hobby? Formulating your dream can bring your goals into focus.

Just because you are saving aggressively, you cannot assume you are on track for retirement. Spending dictates your lifestyle—what type of house you have, the car you drive, vacations you take, etc. While you may be spending within your means today—i.e., spending less than you earn—you need to know if you can sustain that level of spending to age 95. The first step to developing your retirement goal is establishing what your annual spending is. This often involves what seems like invasive, personal questions, but the more honest you are about your spending, a more precise financial plan can be produced. A financial adviser can also account for more variables like market performance and inflation and apply an investment strategy to a situation, which can often result in a more accurate picture of your future.

When working with investors, I recommend applying the Ten Year Rule, assuming money needed within the next 10 years to cover all spending needs is placed in fixed-income investments to preserve principal and protect it from the volatility of the stock market. Furthermore, estimating your spending needs can account for short-term goals like an anniversary trip, the remodel of your kitchen, a new car, etc. Money that is not needed within the next 10 years is invested for growth.

The result is either yes; you can retire and maintain your lifestyle or no; you need to change to either current spending or the retirement lifestyle you will live. I recommend investors find out early where they stand—ideally 15 to 20 years before they want to retire, allowing time to incorporate recommend changes that could improve your retirement. Perhaps with a small change, you could move your retirement age up from 67 to 65. An adviser can also project how a larger change may affect you; maybe you want to retire to the coast in a state with different tax laws. Early planning can also provide time to obtain insurance that could protect your future should something happen that would affect your future income.

Working with an adviser can not only pull your retirement goals into focus, but it can also result in a financial plan that is completely custom to your situation. Furthermore, reviewing the plan every few years can provide a chance to pivot when goals or circumstances change.

William G. Lako, Jr., CFP®, is a principal at Henssler Financial and a co-host on "Money Talks"—your trusted resource for your money, your future, your life—airing Saturdays at 10 a.m. on AM 920 The Answer. Mr. Lako is a Certified Financial Planner™ professional.

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