“How much money do I need to save for retirement?”
This is the single most-often asked question by the vast majority of individuals when it comes to planning for retirement. Whenever I am asked during an initial meeting with a potential new client how much money they need to save for retirement, my answer is always the same, “That depends, how much annual income will you need in retirement?” Their typical response is, “I don’t know … I’ve never really thought about it.”
Contrary to what many investors may think, in order to know how much money you need to save for retirement, you need to know how much annual income you will need in retirement. Put another way, without first determining how much annual income you will need in retirement, you have no way of knowing much money you will need to save.
Everyone’s idea of the perfect retirement is different. But one thing we all share is a desire to have the money we will need, to do whatever it is we want to do when we stop working. And if you want to be in a position to live the lifestyle you want in retirement, you need to develop a written “Investment Policy Statement” plan to get there. The key components of an Investment Policy Statement should include such things as:
• Investment goals and time horizons
• The minimum amount of savings needed to achieve goals.
• How much income you can safely withdraw
• The average annual return needed to accomplish those goals
• Rebalancing procedures
• Portfolio volatility limitations
• The risk level of the portfolio
• Fund selection guidelines
• What is your target asset allocation mix
At Capital Wealth Management, we prepare an investment policy statement for every client. Knowing the answers to these questions increases our client’s chances of achieving their retirement goals. Many financial advisors unfortunately fail to provide their clients with an investment policy statement. According to a survey by Russell Investments, only 39 percent of financial advisors create an investment policy statement for their clients.
Regardless of whether you invest on your own, or you use a financial adviser, every investor could benefit from having an investment policy statement. When you develop an investment policy statement, you have less worry, and more peace of mind, knowing that you have a strategy in place designed to increase the probability of providing you with the savings you will need to live the lifestyle you want in your retirement years.
