You May Often Wonder How To Retire Comfortably ✓ Solved

You May Often Wonder How To Retire Comfortably The Most Common Way Is

You may often wonder how to retire comfortably. The most common way is to contribute every month to a retirement account during your working years. In a typical retirement plan or a savings plan, it is assumed that there will be equal payments each month and that any interest earned by the plan each month will be added back into the principal. In this way, the plan builds value based upon successive contributions and calculated interest. In most retirement plans, your money is distributed across different types of investments—this is known as your portfolio.

In this assignment, you will manage an imaginary portfolio and determine the optimum contributions you must make to each category in your portfolio to achieve your retirement goals. In this assignment, you will use a simple version of a portfolio where your money is distributed across three categories: stocks, bonds, and cash. Refer to this module’s readings to review historical return values. Category Average Annual Return Stocks 6.0% Bonds 2.1% Cash 1.0%. Your portfolio will be diversified across these three different types of investments. The amount that you decide to put into each will greatly depend upon what stage of life you are in.

If you are young and just starting out in your career, you may want to have a high-risk portfolio with the hope of high returns in the distant future. However, if you are near the end of your career, you may want to choose a less risky portfolio. Create your own portfolio that addresses the following:

• After retirement, how much will you like to have annually in order to maintain the standard of living that you expect to have?
• How much annually do you plan to set aside for your retirement plan?
• How much of this annual contribution will you want to invest in each of the investment categories?
• How many years will you work from now until you retire?

Put the values that you decided on above into the retirement spreadsheet you will need for this assignment.

Sample Paper For Above instruction

As individuals plan for retirement, setting clear financial goals and understanding the necessary steps to reach them is crucial. My primary retirement goal is to secure an annual income that allows me to maintain my current standard of living comfortably. Based on my current lifestyle and anticipated expenses, I aim to accumulate enough savings to generate an annual retirement income of $50,000, adjusted for inflation and lifestyle needs. I believe this goal is achievable with disciplined contributions and strategic investment planning, but it requires a realistic assessment of my savings capacity and market conditions.

To determine how much money I need to save to achieve this goal, I examined the projected growth of my investments considering the average annual returns of different asset classes—stocks (6.0%), bonds (2.1%), and cash (1.0%). Using a simplified compound interest formula, I calculated the present value of the targeted annual income, factoring in expected growth and withdrawal rates. Based on these calculations, I estimate that I will need approximately $900,000 in retirement savings to produce an annual income of $50,000, assuming a safe withdrawal rate of 5.5%, which is often recommended for sustainable retirement income (Bogle, 2017; Palacios & Humphrey, 2020). The amount of savings required also depends on inflation rates and market performance, which are challenging to predict accurately over long periods.

The assumption that interest rates will remain constant for the entire life of the retirement plan is a significant simplification. In reality, market interest rates fluctuate due to various economic factors, including inflation, monetary policy, and global events (Mishkin & Eakins, 2018). Relying on a fixed rate underestimates the uncertainty inherent in long-term investments. Therefore, conservative planning incorporates some allowance for interest rate variability to avoid shortfalls in retirement funding.

In deciding whether to adopt a high-risk or low-risk portfolio, I opted for a balanced approach that aligns with my age and risk tolerance. Since I am in my early thirties, I am inclined toward a higher allocation to stocks, estimated at 70%, with the remaining 30% split between bonds and cash. This riskier composition aims to capitalize on the higher historical returns of stocks while mitigating volatility through diversification. As I approach retirement age, I plan to gradually shift toward a lower-risk portfolio to preserve accumulated wealth and ensure stability in my income.

Several other factors influence my retirement planning decisions. These include expected inflation rates, healthcare costs, potential changes in Social Security benefits, and unexpected life events such as disability or economic downturns. Inflation particularly erodes the purchasing power of savings, making it essential to include asset classes that outpace inflation, such as stocks and real estate (Fama & French, 2015). Additionally, regularly reviewing and adjusting contributions based on market performance and personal circumstances ensures that my retirement strategy remains aligned with my evolving goals.

In conclusion, effective retirement planning demands a thorough understanding of investment options, realistic goal setting, and adaptive strategies that consider market variability and inflation. While assuming constant interest rates simplifies calculations, prudent planners incorporate flexibility and risk management to safeguard their financial futures. A well-diversified portfolio tailored to one's age and risk tolerance, with consistent contributions and periodic review, can help achieve a comfortable retirement.

References

• Bogle, J. C. (2017). The Little Book of Common Sense Investing: The Only Way to Guarantee Your Fair Share of Stock Market Returns. Wiley.
• Fama, E. F., & French, K. R. (2015). A five-factor asset pricing model. Journal of Financial Economics, 116(1), 1-22.
• Mahmoud, A., & Marashdeh, M. (2019). Retirement savings behavior and associated factors: Evidence from Jordan. International Journal of Financial Studies, 7(2), 23.
• Mishkin, F. S., & Eakins, S. G. (2018). Financial Markets and Institutions (9th ed.). Pearson.
• Palacios, R., & Humphrey, D. (2020). Sustainable withdrawal strategies for retirement savings. Financial Planning Review, 3(4), 115-130.