Retirement planning: How to create or update your plan

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If you're planning for retirement or about to retire, consider these ideas to help keep your retirement planning on track so you can pursue the life you want.

It’s no understatement to say 2020 was full of astonishing events, from the initial waves of the coronavirus pandemic to the uncertainty around the U.S. presidential election. As investment markets reeled and rebounded, the dramatic changes may have left you wondering how these sudden shifts might impact your retirement planning during 2021 and beyond.

“Market volatility is one of the big risks for those going into retirement,” says John Knowles, first vice president of Retirement Solutions at Wells Fargo Advisors. “The others are inflation, health care costs, and overspending. Some also add longevity to that list, but that isn’t a risk inherently — we all want longevity. Longevity is the thing that multiplies all of the other risks. In retirement planning, you have to factor in longevity’s effect. Think about it… inflation isn’t a factor in the short term, but the longer you live, it can have an enormous effect on your spending power.”

With that in mind, what does smart retirement planning look like? And how can you prepare to handle the common risks you might face? Here, Knowles shares what investors should consider.

Know your everyday expenses …
As you create your plan for the life you want in retirement, your first priority is to make sure you have enough income or money saved to fund your daily living expenses. This requires that you map out what life will look like for you in retirement. For instance, are you planning to move to a new state, or are you staying in your current home? Are you planning to downsize from a large house to a smaller residence? What are your health care costs likely to be? How will that impact your monthly expenses, both mandatory and discretionary?

… and add the cost of your retirement goals
Knowing your everyday expenses is only part of your plan to help you enter retirement with confidence, though. The second part? Determining how you really want to spend your time in retirement. “Who works for 40 years and says, ‘I’ve just got to make sure I keep the heat on’“? Knowles says. “It’s, ‘I want to travel; I want to pick up a hobby; I want to move to be closer to my kids; I want to have a houseful of people.'” List out those goals and their associated costs. That, combined with your everyday expenses, gives you a clear target to begin your retirement planning.

Stay flexible with professional guidance
Your goals for retirement when you’re in your 50s likely look different than what you had in mind when you were in your 30s. The challenges you may need to consider will be different, too — and they’re likely to keep shifting. For example, you might decide to start a new business instead of buying a vacation home, or, like in 2020, an unexpected occurrence could shock the markets and cause a sudden drop — which makes flexibility an important part of the retirement planning process.

Knowles says that this is an example of why it can be beneficial to work with a financial advisor. They can help you determine how to adjust your retirement planning when your goals, personal situation, or market conditions change. And having a long-term relationship can help strengthen the response, as your advisor gets to know you better. “You go to the doctor every year for your annual physical, but if something’s hurting you’re going to go see the doctor about that even though it’s not time for your annual review,” Knowles says. “You should do the same with your retirement plan. At the end of the day, life is going to happen and things are going to change. Even though you might retire at 62, you shouldn’t just plan the next 30 years, you should put things in place that will allow you to still make changes along the way.”