What Rate of Return Do You Need?

What Rate of Return Do You Need?

By Aspire Advisors

Many of our clients have asked: “What rate of return do I need to retire?” or “How much do I need to save in order to live comfortably in the future?” 

Unfortunately, there is no one-size-fits-all prescription for retirement planning and it’s impossible to recommend a specific rate of return or amount that will guarantee the desired results. However, at Aspire Advisors, we believe it’s important to have a general idea of the rate you need to build your savings—as long as you don’t get bogged down with hitting that number exactly. Here are three points to consider about your rate of return as you plan for retirement:

1. Think Long Term

When it comes to saving for retirement, the long term is what matters. The market can be extremely volatile, especially in recent years, so predicting annual rates of return is not an easy practice. The fact of the matter is, the market is going to have down years and there’s nothing you can do about it. Rather than trying to predict annual returns, the process should be focused on your specific retirement goals. 

Understanding how much money you will need to fund the retirement lifestyle you want is the first step. From there, you can work backward to determine the general level of return needed to accomplish your long-term goals. This will give you a rough idea of what you need, but it won’t be so immovable that market fluctuations will derail your whole plan. The thought is that if you can find a general range of returns, you can be more flexible as you plan for retirement.

2. Review Your Portfolio Periodically

Another point to consider as you build your retirement portfolio is that your investments should be reviewed and adjusted periodically. More aggressive portfolios, like those heavily invested in stocks and growth funds, may help you achieve higher returns. More conservative portfolios, on the other hand, usually have a higher allocation of bonds and other fixed-income assets that help maintain stability in your plan and provide protection from the up-and-down nature of the market. 

Although it’s common to start your retirement plan with a more aggressive approach, it’s crucial to adjust your portfolio as you grow closer to retirement. In the few years before distribution, you may need to accept lower returns in exchange for less risk. Overexposure to risk through an overly aggressive asset allocation can wreak havoc on your financial plan in the years before retirement. Despite knowing your general rate of return, you must be willing to amend this expectation as retirement approaches.

3. Don’t Make Investment Decisions Based on Emotion

Lastly, it’s important to separate emotion as much as possible from your investment decisions. This might be one of the most challenging tasks since you’ve worked hard for your money and it can be difficult to watch it ebb and flow with the market—especially when the ebb is much larger and more dramatic than the flow. But, over the years, we’ve found that the clients who do not worry about or react to the many changes of the market are the ones who succeed.

Consistency is key, and it’s important to stick to your investment strategy and try to ignore the short-term noise, including the voice in your head telling you you’re not meeting your required rate of return.

Partner With a Professional

If you are wondering how to get started on your retirement plan, we’re here to help. Whether you have questions about your rate of return or asset allocation or need help defining your goals, Aspire Advisors has the experience to guide you on your path to retirement. Reach out to us to schedule a complimentary consultation by calling 877-760-3540 or emailing info@aspireadvisorsllc.com

About Aspire Advisors

Aspire Advisors, LLC is an independent, fee-only financial advisory firm providing financial planning and investment management solutions for clients throughout Westchester County and the broader tri-state area. The Aspire team has a long track record of helping individual investors, nonprofits, hospitals, physicians, and healthcare executives. As a registered investment advisor, Aspire is a fiduciary and has a legal obligation to act in their clients’ best interests. To learn more about what it’s like to work with Aspire Advisors, visit aspireadvisorsllc.com.

This information represents the general views of Aspire Advisors and is presented for educational purposes only.  This information should not be construed as investment advice or a recommendation to buy or sell any security. Investing in securities involves risk of loss. Past performance is not an indication of future performance.