“Now YOU can learn about retirement planning in plain English. Planning for retirement can be confusing. I cut through all the industry jargon so YOU can learn how to achieve your retirement goals.”

Five Essential Features of an Effective Retirement Investment Plan

A retirement investment plan can be much different from how you invest during your early working years.

At this stage in life you’re facing different challenges. One of these challenges is you have less years ahead of you to earn an income. Another challenge is that when you retire you’ll be more dependent on the performance of your portfolio than you were when you were still earning an income.

Both of these realities point to the importance of helping preserve your principal. It’s always important when investing to help protect your investments on the downside. But it becomes even more important as you approach and then enter into retirement.

Since a retirement investment plan is going to be different from the general investing plan you would have had in your early years of working, it’s important to look at 5 essential features you need to consider when investing for retirement.

So let’s get started

#1: Determine Your Retirement Goals

Two of the most important things that you can do in this step is to be:

  1. Specific, and
  2. Realistic

Here’s an example. You may have determined that you need $5,000 a month in income to cover your expenses in retirement.  Therefore, you need to consider what type of investing steps you should take today to be able to achieve that specific goal in “X” number of years in the future.

This is a specific goal. It’s a specific dollar amount ($5,000) for a specific time period (each month). Even if the amount was not “to-the-penny” specific, it would still be better than something vague like, “I just need enough money to spend in retirement.”

How would you ever know what it would take to have “enough” money in retirement if you don’t have a specific goal for what you need the money to do for you?

In addition you have to be realistic in your goals. For example, if your goal is to have $1,000,000 each month to spend, that’s probably way too unrealistic for 99.99999% of the people in the world. And it’s going to be impossible to save enough money (or grow a portfolio enough) to generate that level of income unless you are a heavy hitter.

Your goals need to be specific so that you know what you’re aiming for. And they need to be realistic so that you know you have a probability of success of achieving those goals. This will make it easier to stick to a plan to help accomplish your goals. If you don’t think you can reasonably accomplish a goal, it is going to be hard trying to stick to that plan.

If it’s unachievable, why do it? It’s like an employee that, no matter what they do, can’t please an overly critical boss. Eventually, they give up and search for another job. And the boss wonders why he can’t get anyone to commit to his business.

#2: Determine Your Risk Tolerance

Typically in the investing world risk is defined as volatility. This means how much your portfolio goes up and down in the market. The less volatile your portfolio is then the less risk it is taking and the more predictability it gives you.

The more volatile your portfolio is, the more susceptible it is to large swings if the market crashes or has a correction.

So you need to determine your risk tolerance. There are risk tolerance questionnaires online that you can take.  Also, before you invest your money with a financial advisor, they should take you through a risk-tolerance questionnaire as well. This will help you align your investments with how much volatility you can handle while still being able to sleep at night.

The second way that you can look at risk is in the probability of being able to accomplish your goals. For example, a young person that’s just starting out in their working career could choose to invest very conservatively (100% in bonds for example) because they have a very low risk tolerance. This would lead them to invest in assets that do not have as much growth potential as more aggressive assets like equities.

While this would certainly be a more conservative and less volatile portfolio, the chances of that investor growing their portfolio enough to achieve their retirement goals 30 years down the road would be lower than if they had invested longer-term in equities with higher growth potential.

Another way of saying this is that this would be a riskier way to invest over the long-term in terms of trying to achieve necessary retirement goals.

So after determining some of your specific goals from Step 1, this should give you an idea of what type of growth you may need in order to accomplish those goals. And while some assets may be less volatile and hence have less risk in them, they may still make the probability of you achieving your goals lower (due to lower growth potential). Hence, you can look at risk from that perspective as well.

#3: Determine Where You Are Now

When you go to the mall and you look at the mall map to find the store you want to shop in, the first thing you have to find is the Big Red Dot that says “You Are Here.” Until you find that you’re not going to be able to find the store that you want to go to.

And the same thing applies to investing. You need to first of all take a look at what your current portfolio is and determine a couple of things about it:

  • How much of your portfolio is in equities, bonds, alternative asset classes.
  • What’s its historical average return been over the last 10-15 years?
  • What type of volatility/risk has it taken historically?

I call this a portfolio snapshot. It shows important information about your portfolio at the current moment, using historical data.

You can then take that information, look at the historical returns and say based on these historical returns, “What is the likelihood that this current portfolio of mine is going to help me realistically meet my spending requirements and other goals I have in retirement?”

Likewise, you can take the historical volatility and risk inside this portfolio and determine if this fits with your risk tolerance from Step 2 above.

Your goal is to create a retirement investment plan that will not only meet your risk tolerance requirements but also give you a reasonable expectation of achieving your goals. If you can do that it’s going to be much easier for you to stick with the plan.  

And when it comes to investing, sticking to a plan is very important. It helps you have a higher probability of achieving your goals.

#4: Choose Your Asset Allocation

Over 90% of the performance and success of your portfolio is going to be based on its asset allocation. This is more important than choosing individual stocks or trying to find the next new hot company to invest in.

Since over 90% of your performance is going to be based on how you allocate your portfolio, it is smart to focus on this aspect of investing.

That means determining what percentage of your portfolio is going to be allocated to the main asset categories of equities, fixed income, and cash.  Alternative investment categories you may want to include in your portfolio would be real estate and commodities.

Based on your risk tolerance (from Step 2 above) this is going to determine how much exposure you’ll have to the different asset classes. If you have a higher risk tolerance, then you may want to be invested in more aggressive classes with higher potential growth. This will help you determine how your overall portfolio should look.

But also keep in mind that you may have different portions of your portfolio that will serve different purposes. For example, you may have some money set aside to cover your spending needs for the next five years. In that case this portion of the portfolio would likely need to be in very conservative investments that have low volatility.

On the other end of the spectrum, you may have a portion of your portfolio that is set aside to leave is a legacy to your kids or grandkids. These funds would have a longer-term investing horizon, and therefore you may feel more comfortable taking more risk with this portion of your portfolio in order to give it a higher probability of getting greater returns.

In other words, different portions of your portfolio need to be structured to serve your needs and help you meet your goals.

#5: Test Your Investment Plan

Once you know where you are (with a portfolio snapshot), what kind of asset allocation will be in line with your risk tolerance, what your goals are, it’s  best to test your plan before making any changes.

The first place to start is just look at your current portfolio. What’s its historical returns? What’s its risk / volatility? Does this type of historical growth give me a good probability of growing it enough to meet my spending goals in the future for retirement?

From there you can look at different ways you could potentially tweak your portfolio to help make it better. You may even look at different ways to allocate your portfolio. Some may be more aggressive and have more equities exposure. Some may be more conservative and have more fixed-income exposure. In some cases you may use a portion of your portfolio to invest in fixed annuities as well to help reduce the risk in your portfolio and give you more certainty.

Then test the different scenarios so that you know which ones give you a better probability of success that are in line with your goals and your risk tolerance.

Most financial planning software will allow numerous plans to be tested over 1,000 different scenarios based on portfolio performance. They can then give you a probability of success of achieving your spending requirements without running out of money. Most advisors will have access to this type of planning tool.

But if you don’t have access to financial planning software that does this (or if you don’t have an advisor who will do this for you) the next best thing would be to take the historical returns that you see in your current portfolio and project those returns out into the future. Will that growth rate allow your portfolio to grow enough to support your spending goals in retirement?


Retirement investment planning is different from investment planning for younger investors. It’s more important to take steps to help protect your principal. But you must do so in such a way that it still gives you a reasonable probability of meeting your goals.

And having a plan in place makes it much easier for you to not make emotional decisions you’re your investments. Emotional decisions often times can do more harm to your portfolio than good.

And ultimately that will affect the type of retirement that you get to live later in life.

Hope that helps. If you know anybody else that needs help with their retirement investment plan be sure to forward this article to them. We can reach more people working together with this very important message.

You can even click the Facebook icon on the left of the screen to quickly share this with your friends.

Warmest regards

Chris Hammond

Retirement Investment Plan

© 2014 Retirement Planning Made Easy. All rights reserved. Privacy Policy | Disclosures • 95 Tennessee St. • Savannah, TN 38372 • Ph 731-925-8351 • Fax 731-925-8352

Investment Advisory Services offered through Retirement Wealth Advisors, (RWA) a Registered Investment Advisor.  Tri-State Financial Group, and Tri-State Insurance & Financial Services, and RWA are not affiliated. Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance. Past performance does not guarantee future results. Consult your financial professional before making any investment decision.

This information is designed to provide general information on the subjects covered. Pursuant to IRS Circular 230, it is not, however, intended to provide specific legal or tax advice and cannot be used to avoid tax penalties or to promote, market, or recommend any tax plan or arrangement. Please note that Tri-State Financial Group and its affiliates do not give legal or tax advice. You are encouraged to consult your tax advisor or attorney.

Annuity guarantees rely on the financial strength and claims-paying ability of the issuing insurer. Any comments regarding safe and secure investments, and guaranteed income streams refer only to fixed insurance products. They do not refer, in any way to securities or investment advisory products. Fixed Insurance and Annuity product guarantees are subject to the claims‐paying ability of the issuing company and are not offered by Retirement Wealth Advisors. Chris Hammond is insurance licensed in TN.