Our first step in the planning process described how to determine where you are now financially. In the second step we covered how to go about quantifying where you want to be in the future. With the starting and end points defined, our third step will describe a process for determining how you will go about pursuing your financial objectives.

The first thing to understand is that there is no “cut & dried” solution to achieving your goals. All investments are subject to risk no matter what their nature may be. Fixed sources of income such as pensions and low volatility/low yielding investments are subject to the erosion of purchasing power from inflationary conditions. More volatile investments are obviously subject to capital losses. “Guaranteed” investments are dependent upon the strength of the guarantors to deliver on their promises.

A financial plan is just that – a plan. There is never a guarantee of achieving the desired goals. However, the plan is the vector that puts you on the course to confidently pursue your financial objectives. Monitoring progress toward your goals is an essential ingredient for success, and your goals should be revised and updated accordingly to reflect the changes in your life as they occur.

Three Factors: Savings, Risk Tolerance, and Time

For a retirement planning scenario, the solution to the “how are you going to get there?” question is largely based upon three primary factors: your savings rate, your risk tolerance, and your time horizon for accumulating and depleting your retirement savings. Finding the appropriate combination of these three factors is the key to creating a financial plan that is designed to achieve your goals. In some cases, the financial goals are too ambitious and have a low likelihood of success, in which case, it becomes necessary to modify the goals accordingly.

Your savings rate will largely be determined by your budget, your financial goals, and your commitment to achieving them. Financial objectives that are a top priority for you should be designated as “mandatory savings” in your budget. Treat your mandatory savings as a bill just like a monthly mortgage or utility payment, and utilize the tax-advantaged features of traditional IRAs, Roth IRAs, and employer-sponsored retirement savings plans such as 401(k) plans whenever appropriate.

It’s essential that you assess your own personal comfort level with investing (also known as your risk tolerance) when determining a rate of return to use for investment return projections. An investment strategy that comports to your risk tolerance puts market volatility in the proper context for achieving your goals and helps mitigate the deleterious consequences of making financial decisions based upon emotion. We would encourage you to consult with a financial professional who operates under a fiduciary standard if you need assistance with assessing your risk tolerance.

Lastly, the element of time can work for or against you. Generally speaking, the longer the time horizon there is available to you before withdrawing your funds, then the greater the likelihood of recovering from market related losses. Also, the compounding effect of interest provides considerable benefit to someone who begins the savings process earlier in life as opposed to later. A sensible rule of thumb is that investments should be positioned more conservatively as the timeframe for accessing the funds grows nearer.

Perhaps, the element of time is at its most critical in the earliest stages of retirement, because significant losses at this stage may permanently impact future withdrawals going forward. What may have started off as a reasonable 4% annual withdrawal rate may suddenly become an unsustainable 6% or 8% annual withdrawal rate if the losses are significant enough early in retirement.


Creating a sound plan requires that you assess your proclivity to save for your goals, to determine and invest pursuant to your risk tolerance, and to position your investments appropriately for your goal’s timeframe. These three factors will be an integral part of the investment strategy you choose to implement. As these factors change over the course of your life, your investment strategy should reflect these changes.

Most retirement goals can be rather complex and typically require sophisticated financial planning that incorporates the tax code, inflation assumptions, and investment return probability scenarios. Please contact Leo if you have any questions about engaging the services of a CFP® professional.