Last few months I have been planning for my retirement. Soon I realized that it is a bigger problem than we all would have anticipated. Our generation would outlive our retirement funds. What would I do if I run out of money between the ages of 75 and 85? And what if I live beyond 85? Well, one hundred million fellow Americans are going to face this problem between 2040 and 2050. So what did I find out about retirement planning?
In my supermarket, there are 10,000 unique items, of which, I might need 50 to 100 items. Similarly, there are 8000 mutual funds to cater to various needs. Mutual funds are more than stocks traded. Now the question is — what would be your strategy to shop in your supermarket and in the financial market? It turns out it is pretty similar.
Assume that you like ice-cream — Who doesn’t? How would you know which ice-cream tastes best? Of course, you will try out a few things. Still, you are not convinced that you are buying the best ice-cream. Then one-day your friend suggests that they tasted “THIS ice-cream” and it is the best. So on the next shopping trip, you buy “THIS ice-cream”. And you agree that this is the best ice-cream. Thanks to your friend that you found the best ice-cream. Without your friend, you might be continuing your search out of 50-odd ice-creams in your supermarket. Now think about financial products. Don’t you think you should be picking financial products the same way? You should, if not you are exploring in the wilderness. I can hear you saying — retirement planning is not ice-cream. You are right, ice-cream analogy ends here, by answering the better approach to choose a product. Now starts retirement planning.
How much you need? How long you need? And through which vehicle you need it? It is easy to answer if you know all that can be known about the future. When you don’t know how much you need and how long you need it, then the plan you have chosen might not be the best one either. Add to this, all the future unknowns. So what would be a solution here?