Put Your Retirement Goals in Writing
According to the 2019 The Retirement Confidence Survey (RCS), nearly two thirds (67) of working Americans are confident that they will be able to live comfortably in retirement. When asked how much money they will need to save for retirement, over half (58 percent) stated they had no idea.
Most individual investors understand that the sooner they begin saving for retirement the better. However, simply saving money in a retirement plan (i.e., 401(k), 403(b), or IRA) and hoping that it will somehow “all work out in the end,” is not a plan for retirement.
When I first meet with a potential new client, I will often ask them to answer the following three questions.
1) Do you know how much income you will need annually to retire comfortably?
2) Do you know how much money you will need to saving for retirement?
3) Do you know what rate of return you need on your investments to achieve your retirement goal?
In my 19 years as a registered investment advisor, I cannot recall even one individual who could answer yes to all three questions. It is often said that you don’t have a real plan until you put it in writing. This is especially true when it comes to planning for retirement. One of the ways this can be accomplished is by creating an Investment Policy Statement (IPS).
An Investment Policy Statement is a written document that helps you to decide what your goals are, and establishes guidelines for achieving them. An IPS goes beyond the cookie cutter “Know Your Client” questionnaires many investors are familiar with. An Investment Policy Statement (IPS) is critical to long-term financial success. Much like a blueprint for building a house, an investment policy statement serves as the blueprint for building your portfolio.
The key components of an Investment Policy Statement should include such things as:
1) Investment goals and time horizons
2) The minimum amount of savings needed to achieve goals.
3) How much income you can safely withdraw
4) The average annual return needed to accomplish those goals
5) Rebalancing procedures
6) The risk level of the portfolio
7) The types of investments you will and won’t include.
8) How assets are to be allocated.
Regardless of whether you invest on your own, or you use a financial adviser, every investor could potentially benefit from having an investment policy statement. When you develop an investment plan, you have less worry, and more peace of mind, knowing that you have a strategy in place designed to increase the probability of providing you with the savings you will need to live the lifestyle you want in your retirement years.
If you work with a financial advisor he or she should prepare a written investment policy statement for you. At Capital Wealth Management, we prepare an investment policy statement for every client. Many financial advisors unfortunately fail to provide their clients with an investment policy statement. According to a survey by Russell Investments, only 39 percent of financial advisors create an investment policy statement for their clients.
Martin Krikorian is president of Capital Wealth Management, a registered investment adviser providing “fee-only” investment management services located at 9 Billerica Road, Chelmsford. He is the author of the investment book, “10 Chapters to Having a Successful Investment Portfolio.” Martin can be reached at 978-244-9254, Capital Wealth Management’s website, www.capitalwealthmngt.com , or via email at firstname.lastname@example.org .