Part 3: Developing A Long-Term Plan For Your Retirement

Staying Committed To Your Plan

In Part 1 of this 3-part series, I identified the 3 main questions that need to be considered by those planning for their retirement and developing a long-term financial plan:

1. What is most important to you personally and financially?
2. Do you have the right financial plan and savings to get there?
3. How will you stay on track to the end?

In this follow-up article, I would like to look specifically at question #3 – How will you stay on track to the end?

How you will stay on track to the end is too important to leave to chance, so it is recommended that your retirement plan represent all aspects of your life and should be built to last. With all of life’s ups and downs, an effective plan will be able to steer your actions as you work on reaching your goals. But even the best retirement plan cannot succeed if you do not stay committed.

Navigating your finances through all the significant events and phases of life is going to require a firm commitment.

Without commitment you will not be able to push through – or around – the obstacles you’re going to face along your financial journey.

Here’s the problem: staying committed to your financial plan for the long-term is hard. Times get tough, sacrifice will be required, time must be set aside, and your life will always change.

Staying committed and on track with your plan is likely to be the most important and challenging part of preparing for retirement. There are several key areas that could potentially become obstacles if they are not continually addressed. These obstacles have the potential to get you off track and cause your commitment to dwindle. To avoid that, you need to remain committed to these areas:

• Regularly rebalance your portfolio with the goal of keeping it aligned with your comfort level with risk and market volatility.
• Obtain education and guidance to help you keep your emotions in check, so you can more effectively manage your behavior and money decisions.
• Keep track of changes in your life and your goals through self-evaluation and rediscovery, so your retirement plan reflects your ever-changing life.
• Regularly assess your progress toward meeting your objectives, so you can work efficiently and improve your results over the long-term.

Potential Obstacles

Ongoing Portfolio Rebalancing

Rebalancing involves buying and selling some of the investments in your portfolio with the goal of maintaining your chosen mix of stocks, bonds, and other factors of return, such as company size, value, profitability, momentum, etc. Rebalancing is an important step that many people neglect when they are managing their own investments.

Without it, your portfolio can drift from one level of risk and volatility to another as the markets fluctuate. This drifting away from your optimal asset allocation can be fast and significant. Your portfolio could reach a level of volatility that makes you uncomfortable or which you cannot safely handle given your unique situation.

A rebalanced portfolio typically experiences less severe ups and downs when compared to a portfolio that isn’t rebalanced. A drifting portfolio may outperform a rebalanced portfolio over time, but it will typically do so with greater risk and volatility. As a result, the rebalanced portfolio will likely achieve a better risk-adjusted performance, meaning more return relative to the risk you are willing to bear.

(Rebalancing does not guarantee a return or protect against a loss. The buying and selling of securities for the purpose of rebalancing may have adverse tax consequences.)

Managing Behavior

As I have mentioned in earlier articles, money is very often bound up with strong emotions like security, confidence, and fear. While investing and saving for retirement, these emotions may cause one to make decisions contrary to what they are trying to accomplish and lose focus on their plan and what’s most important in their life. Managing your expectations through all the investment cycles is one of the more difficult challenges you may face.

We know that remaining patient, disciplined, and sticking to a strategy is hard, especially when stocks or other assets are soaring or plummeting. The way our brains are hard-wired can cause us to make emotional decisions about our money at precisely the wrong moments. Ultimately, this kind of emotional, short-term behavior can have detrimental consequences, including dramatic portfolio underperformance leading to a failure of the retirement plan.

Therefore, you must regularly seek out the education and guidance that will influence your decisions about money, reflecting a historical perspective rather than the hype-filled perspective we often hear from the financial news media, coworkers, our family, and friends.

Keeping Track Of Changes

Not only should a good retirement plan help you stick to your strategy in a variety of market environments, but it should also be flexible enough to adapt to changes in your life. No one knows what the future will bring, so you must closely monitor your plan for the need to make adjustments that will allow the plan to keep pace with where you are in life. To this end, you will need to regularly address, clarify, and prioritize your goals in all the important areas of your life and to assess the progress you are making toward achieving them.

Assessing Your Progress

Knowing the progress you are making toward achieving your goals can help increase your odds for success. When you know how close you are to achieving a particular financial goal, you’ll have the freedom to concentrate on the steps at hand without the distraction of wondering what you may have missed or what will be required down the road. Knowing your progress will also help you minimize hiccups or a loss of momentum as you transition from step to step. You will be able to work efficiently and improve your results over the long-term, giving you more certainty and confidence in making both short- and long-term decisions.

But beware of the temptation to maintain a positive self-image by avoiding information about your progress when you think it’s going to point out that you are not moving forward as you had hoped. Or by avoiding information which may indicate the need for a change because you’ve gotten something wrong. We all like to feel in control, and information pointing out a discrepancy between where you are and where you want to be may cause a drop in self-confidence, leading to a slowdown in progress and/or giving up on the goal altogether.

To avoid that from happening and to help you monitor and assess your progress, a team of financial professionals can work in concert and make sure all your needs are being addressed. Your team of professionals may include:

• Financial Planner
• Certified Public Accountant
• Estate Planning Attorney
• Insurance Professionals

Having your own team of specialists working closely together helps to maximize the effectiveness of your plan, making sure it stays in sync and with every item properly addressed.

Summing It Up

Navigating your finances through each phase of life requires more than just an effective retirement plan – it requires a commitment. Through life’s ups and downs, your commitment to the plan will help you navigate all the potential obstacles along your financial journey so you can stay on track to the end.

I know you want to feel more confident about your chances of success, and I am committed to being with you every step of this journey, helping you to make it as successful as it can be. I hope this information has been helpful, and I am happy to answer more questions or to help you design a financial plan that will give you the confidence about the future you want. Working with me is easy:

1. Schedule a phone call
2. Get the right financial plan for your situation
3. Keep your plan on track with ongoing support from me