retirement planning - Smart Financial Planning For Retirees

by Brendan Lawrence
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Financial planning is an important step towards retirement planning. It is important to have financial planning goals set before embarking on this crucial exercise. In this exercise, you have to make sure that your income after retirement from your investments is sufficient to maintain your current lifestyle. Certain basic assumptions on inflation, interest rates, returns on your investment etc are required. Usually financial planning for retirement is recommended at a young age. When you are young, you have multiple avenues for investment. Equities, Bonds, Real Estate, Bullion are some of the most common asset classes that go into your asset allocation during financial planning. Depending on your age, risk appetite and expected returns you can distribute your savings in some or all of these asst classes. A financial planner with a CFP might be required if you intend to seek professional advice.

Asset allocation is an important part of financial planning. Asset allocation is the method of allocating your savings into multiple asset classes to achieve many important goals. One of the most important goals is diversification which aims to reduce asset specific risks. For instance, you invest in multiple stocks to avoid company specific risks. Diversification is an important part of financial planning. The different asset classes behave differently to economic data. Hence in most circumstances, they are not highly correlated. It is important to look out for assets whose returns have a very low or negative correlation. Another important goal of asset allocation is to build a portfolio which is in line with the investor's investment objectives and provides a good risk-adjusted return. Asset allocation into the asset allocation also depends on the age and risk appetite. For instance, a person in his early twenties can afford to allocate more than 70 percent of his savings to equity if he is doing retirement planning. However, if the same person is investing for the purpose of higher education, it is recommended not to allocate more than 30 percent to equities.

Some asset classes are more risky than others. Equities as an asset class are certainly more risky than bonds. Risk usually refers to uncertainty of returns and can be easily measured by calculating the standard deviation of returns. It is always best to look out for reasonable risk adjusted return. Financial planning for retirement can also be done purely by investing in income generating instruments. Income generating instruments are dividend stocks, bonds and property. Dividend stocks with a good dividend yield pay regular dividend. This can be a potential income during after retiring. Bonds and fixed income securities pay coupon on a specific principal. Investments in property may generate significant rent. Hence while performing retirement planning; it is good to allocate significant portion your savings into income generating instruments. Investment is gold and other asset classes are recommended purely for diversification purpose. Financial planning if done sensibly and early on can help you achieve your financial goals. Investing monthly into your retirement account can help you invest in a disciplined manner. This can also save you taxes on dividends and other returns until later. It is always best to consider various options and select the one which suits your preferences.

Click here to find out more about the Savings Bond method of retiring.

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Brendan Lawrence

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