You would immediately think I'm wasting your time with obvious advice if I told you to consider your own situation when it comes to financial planning. Yet, too many people seem to forget the "me" in the whole retirement equation. Sure, we already know the basics like moving to safer assets as we approach retirement. But we also need to balance out other risks in our lives through our investments. Here are a few examples of when you need to adjust your investment choices to your individual situation.
Too much real estate. Buying your own home is still the American dream. But if you own a house, a second vacation home, and also invest in real estate investment trusts, you have unknowingly tied your entire financial future to the housing industry unless you have a substantial investment portfolio. The same goes for real estate investors who own many income properties, often in the same geographic location. While not many people will question a real estate mogul who might own a dozen apartment complexes, there are many other ways of achieving wealth without having everything tied up in real estate. What if there's a natural disaster in the region, like hurricane Katrina essentially wiped out the New Orleans? How will this affect you if all your assets are tied up in housing?
Excessive company stock. Public companies love to issue stock options as part of the compensation package because it’s much cheaper than paying cash. As a result, employees often accumulate too much stock in their own company. You’ve heard this before, but it’s worth repeating. If your company gets into financial trouble, you could lose a big chunk of your nest egg is addition to your job. Say no to company stock unless it is offered at an extremely attractive price. And even then, sell it as soon as you can.
Get a general idea of how much you spend. Your estimate doesn’t have to be perfect (though it will help with your finances now if you have a budget), but a rough idea of how much you spend is crucial to your retirement planning. I don’t know why it’s not emphasized more often, but your retirement funds need to cover your expenses. Instead, I hear expert advice talking about replacing a certain percentage of your income. For example, I might be earning $100,000 and only spend $20,000 a year, while someone may earn $80,000 and spend $30,000 a year. Who actually needs more money to retire? Figure out how much you need to spend and plan your retirement accordingly. You need to pay for gas and food in retirement. No one actually needs to know how much money you ever made.
The general advice you read online and off is a good starting point when it comes to your overall financial plan. Once you inject your own situation in there, then it becomes a road map that actually has a good chance of succeeding.
David Ning runs MoneyNing, a personal finance site aimed at helping others change their habits for a better financial future. He suggests that everyone to sign up for an online savings account to get more out of our hard earned money.