Time Horizon - An Essential Part of your Retirement Planning
It's possible that you will never have to make any financial decisions more important than those relating to your retirement plans. These are likely to involve the consideration of a number of important factors, including the following:
- Your present and future cashflow needs
- Whether you wish to create a legacy for family or charity
- Your level of risk-tolerance
- Whether you wish to simply protect or to grow your wealth
- An assessment of market conditions
- Your personal goals
However, this list is somewhat typical in that it neglects to mention what may well be the single most often overlooked aspect of retirement planning: time horizon.
Understanding Time Horizon
Time horizon is a complex subject. In a sense it can be boiled down to one key issue: how long will you need your money to last and how should you best structure your wealth to account for this time horizon so that you will not run out of money in your retirement?
However, there are so many complex considerations built into the question of time horizon that it certainly deserves more detailed explanation.
For example, if you are 63, have a chronic health condition, do not have history of longevity in the family and are due to retire soon, it is likely that you will have only a relatively short time horizon, so you may not want to take a risk-based approach to retirement investment. This is because over shorter periods of time, portfolios are more likely to be adversely affected by market volatility.
Conversely, if you are younger and have a much longer time horizon before you, you will have room to take risks and to make the most of the fact that, in historical terms, markets experience growth over the long-term and that, furthermore, by investing early you open up the opportunity of enjoying several decades worth of compound gains (the interest you earn on your interest) – the earlier you begin saving, the more your money can work for you.
Calculating Your Personal Investment Time Horizon
Ultimately, calculating your time horizon is about ensuring that you do not run out of money at the time when you will need it most: your sunset years. If you do not do this correctly and live longer than expected or have to make withdrawals from your retirement accounts to cover unexpected care costs, medical expenses or other outgoings, you very quickly risk eroding your accounts to the point at which you might run out of money.
According to the World Health Organisation, Americans are living to an average age of 79.3 while the average life expectancy for UK citizens is 81.2*. Eurostat reports that the average life expectancy of Europeans after 65 is around 20 years or more.** In short, this means that you are likely to live significantly longer than your parents and grandparents, so you must be sure that your investments are geared to reflect this, particularly if you plan to leave a legacy or have a younger spouse.
Retirement Planning with Blacktower in the US
Blacktower in the US can help you identify your time horizon and retirement goals and then assist you in developing the right strategy and asset allocation for your circumstances.
Investing is a complex undertaking and requires a high level of specialised expertise if you are to have the best chance of achieving your goals. For more information about how we may be able to help you with your retirement planning, contact us today.
*Figures published in 2016 for both sexes: https://en.wikipedia.org/wiki/List_of_countries_by_life_expectancy