Many of your short-term plans can change over the years. But you always need to focus on three life goals: planning retirement, preparing for the unexpected, and creating an inheritance plan. What steps should you take to achieve these goals?
Let’s start with retirement. Throughout your career, you have to invest money in a retirement that could last two or three decades. So you should contribute enough to your IRA and 401 (k) or similar employer-sponsored retirement plan to meet your retirement income needs. And you should fund these accounts with a reasonable percentage of growth-oriented investments depending on how you handle risk and how long you need to invest.
But retirement provision involves more than just a general obligation to save and invest. You also need to imagine your retirement lifestyle. Will you travel a lot or stay close to your home and pursue your hobbies? Or are you thinking about moving or spending part of the year in a holiday home? Your retirement wishes will help determine how much money you will ultimately need to live the lifestyle you desire.
Finally, in retirement, you need to make sure that your resources are not outliving. So when you start withdrawing money from your retirement accounts and investment portfolio, you should establish a sustainable payout rate – one that will allow you to enjoy your retirement while accommodating the inevitable ups and downs of the financial markets.
Now we come to the second goal in life: planning for the unexpected. Even if you budget carefully, you may not always be prepared for unplanned costs, such as necessary home improvement items. If your cash flow can’t cover these expenses, you may be forced to make your long-term investments, potentially resulting in taxes, penalties, and less money to spend on retirement. Therefore, it makes sense to maintain an emergency fund with living expenses for three to six months and keep the money in a liquid, low-risk account.
Of course, more serious unexpected events can also occur. If something h -pened to you, could your family members maintain their lifestyles? Could the mortgage still be paid? Could Your Children Continue With Their College Plans? It is important that you have adequate life insurance to cover these needs.
The final goal in life – creating an estate plan – is to achieve several goals. For example, you may want to -point someone to make financial and medical decisions on your behalf in the event you become unable to work. If you have children, it is important to -point a guardian in case something should h -pen to you. It is also necessary to keep your beneficiary designations up to date. You may also want to leave something to charitable groups.
To achieve all of these goals and possibly more, you will need to work with an attorney to prepare the necessary documents and agreements such as a permanent power of attorney, will, living trust, and so on. You may also need the help of your financial advisor to review your beneficiaries and align your estate and legacy goals with your other financial goals.
Life is full of twists and turns and you can change your own course along the way. But no matter which path you choose, you still have to achieve the three life goals discussed – so keep working towards them.
– This article was written by Edward Jones for use by Stoney Thomas, Edward Jones’ local financial advisor.
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