How risk and cash flow needs affect retirement planning

Retirement planning. The one common theme that connects us all – regardless of where we are in life.

From the theme that we have been exploring on this blog, as well as on the Twitter feed, the one constant is precisely that; of how to spur thinking, reflection, education, and hopefully, action on planning for retirement.

How much to save, how to invest, when to evaluate the allocation, how to rebalance, is all up the individual’s preferences and comfort level. As is the risk they are willing to live with.

To that end, is a very thought provoking AdvisorOne article that appears in the September 2012 issue of the Research: magazine, that discusses the concept of risk, and how industry titans factor that concept into retirement planning.

While there is a lot of literature on the multitude of elements that comprise of an appropriate retirement plan, ‘risk’ is one that is felt in the gut, but difficult to visualize.

One way to deal with risk is to relate it to how it affects the availability of liquidity when the time comes to begin drawing down on the accumulated assets. If we are comfortable that there is little or limited risk to the investments such that the cash will be available when needed, we can breathe a little easier.

What that money is required for, and over what time period, is up to the individual – their needs, wants, dreams – in that order.

Understanding the cash flow requirements, over what time frame, and how investment risk could potentially impact its availability is one way to start the process. But that is just a start. For the plan to work effectively, constant monitoring and evaluation of the entire strategy are an absolute must. But once the process begins, over time there is enough motivation to continue.

Does this thought process help you as a reader, regardless of whether you are an employee, employer, or service provider to think about how to go about incorporating ‘risk’ in your retirement planning strategy? What other elements would you incorporate and consider in your retirement planning strategy?

Something to think about, and share.