How To Deal With The Economy's Ups And Down In Retirement Planning

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Fluctuations in the economy can negatively affect a retirement planning portfolio. If you intend to achieve your goals, you need to take a few key measures. Retirement planning services providers may tell their clients to look at these four issues.

Targeting for the Worst Scenario

Hoping for the best is a bad idea when it comes to the economy. In the long run, the economy has historically provided excellent returns to folks who invest in it. However, the economy can swing unpredictably. If that happens right before you retire, you might be working with a lot less money than you had hoped for.

Speaking with a retirement planning professional about the worst of the possible scenarios. Look at this through the lens of the economy, but also examine the issue based on what might be the worst outcome for you. A person may need to retire early for health reasons, for example. Prepare for those sorts of adverse scenarios so you'll have better chances of overshooting your target.

Recalibrate Your Risk Profile

When people think about economic fluctuations, they often focus on the ups and downs of the market at large. A competent portfolio should have some diversification as a hedge against risk. However, the inherent risks of the market change over time even if the economy is booming.

Most retirement planning services firms encourage their clients to reassess their risk profiles at critical stages of their lives. Someone in their 20s, for example, will want to have a high-risk portfolio with significant exposure to the stock market to target long-term growth. Conversely, a person five years away from retirement may want to invest more money in bonds so they can be sure their assets will accrue even in a downturn.

Account for Inflation

Growth over time is an amazing thing. However, the growth of your retirement accounts has to stay ahead of the inherent growth of the economy. As the economy grows, it tends to exert inflationary pressures on assets. A $500,000 house today doesn't remotely compare to a similarly priced residence from 50 years ago, for example. Do not let slow and steady growth leave you behind the curve on inflation when there are usually better options available.

Outline Your Goals

Retirement funding is an abstract goal. You need to think about the specifics. Where do you want to live after you retire, for example? What standard of living will work for you? Set specific goals so you can pursue them with clear eyes.