There was a period in my life when I couldn’t bear to think about retirement planning. I didn’t know how to do it. I didn’t think I could afford it. I only knew the problem grew worse with every day I ignored it.
So I blanked it out. It was a big, self-inflating ball of worry but it was invisible. Like a personal climate change problem, I pretended everything was hunky-dory by shutting off the voices of doom in a soundproof part of my brain.
If only I knew how easy creating a workable retirement plan could be!
First things first: It’s vitally important to define your investment goals . Without knowing your destination, you can’t work out how to get there.
A large-scale, life-altering project like investing for retirement may seem too abstract, distant, and difficult to deal with. Yet it can be done quite quickly by stringing together a few logical steps and employing a retirement calculator  to crunch the numbers.1 
Creating your retirement plan
Before the calculators can whir, we need to sketch out our retirement vision and the key factors that will make it happen.
- My vision – To build an annual income that will sustain me and my nearest and dearest once we can no longer work.
- Target – The annual income I need to live on in retirement. Another way of approaching this is in terms of total pension pot.
- Time horizon – e.g. I want to retire no later than age 65.
- Contribution level – Most calculators ask for the percentage of income that will be fed into your pension funds, but ultimately this comes down to how much cash you can save.
- Expected rate of return – What growth rate might we get from the mix of assets  we choose for our portfolio?
To make my retirement plan a little more tangible, I’ve taken to thinking of it as my very own financial farm:
- My target income is the crop that I’ll be harvesting in the years to come.
- My contribution level is the seed that I sow.
- The time horizon is the length of the growing season.
- The expected rate of return is the effect of the financial sun, rain, and soil upon my crop.
- I can even throw on fertilizer to increase the expected rate of return by choosing a riskier asset allocation.
Over the rest of this Special Retirement Week On Monevator! I’ll look at how to turn the factors above into raw numbers that you can feed into a retirement calculator.
As we go, we’ll look at each issue in turn (and magically the four bullet points below will be updated with links, too):
- Target: How much do I need to live on in retirement ?
- Time horizon: How long have I got until I retire? 
- Contributions: How much money must I save to achieve my goal? 
- Expected rate of return : Working out your asset allocation
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Creating a retirement plan is worth the effort
Your investment goals face no bigger threat than the prospect of you giving up part way through.
By investing some time in your plan, before you invest any money, you will make your goals more tangible. You get a sense of what mission accomplished will look like, and can then draw a deep breath and take on the challenge.
After a while, you will savour your progress, relish defeating your demons, and turn a mental block into an empowering positive in your life. (Honestly!)
Take it steady,
- Beware that results can differ depending on which calculator you use. Use them as a guide to planning only, always check the assumptions used by the calculator, and appreciate that reality could turn out very differently. [↩ ]