Determining the real impact of your financial plan

Beacon Financial Education talks about the risk factors which may be associated with your retirement plan and walks you through some tools which can help predict your retirement’s actual impact.

When planning for retirement, it’s best to have a realistic take on how your financial plan will achieve your goals and marks. Some may opt for a risk-based retirement plan and others may make their investments more conservatively. Either way, there are factors that may influence the result of your financial plan.

Inflation

Inflation is defined as a general increase in prices and fall of purchasing power. Inflation can have a great impact on the goals of your financial plan. When inflation is high, we need to compensate and adjust for less potential purchasing power in the future. The average rate of inflation tends to fall around 2,0% YOY (year-over-year), so planning for 3,0% will put you in a good spot.

Interest rates

Interest rates go hand in hand with inflation. When borrowing interest rates are high, central banks may increase interest rates to combat inflation. It is best to keep an eye on interest rates and pick and choose when to borrow money.

Having financial plans in multiple countries

As an expat, there is a lot to plan for. Living in multiple countries means basing financial goals on multiple rules and regulations. Pension plans, tax treaties, and government regulations can have an effect on your financial plan’s bottom line. Luckily, there are experienced financial planners who can get the most out of these variables. Speak with your financial advisor today to make a plan to navigate the murky waters.

Tax rates

As we’ve seen in the most recent U.S. election, tax rates can change, especially when different parties head legislature. Because tax law is ever evolving, it is important to stay up to date on the latest news, as well as prepare for changes in your retirement plan based on these variables. Set up with a financial advisor so that any tax changes or laws can be compensated for and enjoy a smooth road into retirement.

Apart from these external factors, there are also personal aspects to creating a healthy financial plan.

Personal income

How much you earn is actually the most important element of your financial plan. Improving the height of your income will contribute considerably in enhancing your future prospects.

Spending and saving habits

Whether you are a wise or savvy spender, and how much you can afford – or are willing – to put aside will also determine the success of your retirement plan. Set spending and saving goals, so you are actively working towards your desired future. Live within your means. Use your credit card with caution and pay off any loans as soon as possible.

Investing and the importance of diversification

Putting money aside into a savings account isn’t yielding a lot of interest nowadays. Just setting it aside is a start (and naturally better than spending it), but taking, for example, inflation into account, it won’t be worth as much in 20 years as it is now.

Let’s assume you have 50.000 euros now. In 20 years’ time, based on an inflation rate of 2,0%, the value of this amount will have decreased by almost a third. In other words, if you need the equivalent of 50.000 euros in 2038, then you would have to put 75.000 euros aside instead.

Investing will help with increasing your wealth, though it can be risky as well. First of all, seek assistance from a financial advisor, and make sure not to bet all your money on one horse. A diverse portfolio is the way to go! One good investment is owning a property. The mortgage of your house is usually a “good debt”.

Protection strategy

Many things can happen in a lifetime, unexpected events, such as losing your job, becoming ill, or maybe divorcing, can have a negative impact on your personal financial plan. Insurance will help you cover unexpected expenses. Talk to an insurance advisor to find out which insurances are suitable for you and your personal financial goals.

Beacon Financial Education offers a number of tools that will help you assess your current financial situation. The retirement calculator, for example, can estimate how much your money will be worth at retirement.

Speak with a financial advisor to nail down a foolproof retirement plan which will have you confident going into your golden years!

Beacon Financial Education does not provide financial, tax or legal advice. None of the information on this site should be considered financial, tax or legal advice. You should consult your financial, tax or legal advisers for information concerning your own specific tax / legal situation.