If you put off setting retirement goals in the past, there’s no time like the present to take control of your investments. If you’re wondering where to start, you’re not alone.
In a recent survey, Richard Barringon, MoneyRates’ senior financial analyst found that 61% of us have vowed to save more and spend less in 2021, but 28.1% [don’t] identify any specific steps for how they plan to do so. Not setting goals, or setting unrealistic goals, can be frustrating and create more fear about the process than necessary.
Setting meaningful goals for your investments can help you stick with the plan, build the retirement you want, and enter retirement with confidence.
How to Set Goals for Your Investments
When thinking about setting goals for retirement, you have two areas to consider: 1) the definition of a goal, and 2) what a good investment goal looks like.
Define Your Goals with the S.M.A.R.T. Method
It can be difficult to define a goal. You want to do this right, and the S.M.A.R.T. method is one of our favorite ways of getting things done the right way. S.M.A.R.T. is an acronym for S(pecific), M(easurable), A(ction), R(ealistic), T(ime-Frame). Whether you’re setting personal or financial goals, this framework will help you build a good foundation.
SPECIFIC – Make your goals specific and narrow for the most effective planning. For example, a lot of us might have a goal to clean our homes over a weekend, but that’s pretty broad, not to mention ambitious. It could take an entire day and if you don’t finish, your goal may fall to the wayside, never met, and you may not even feel good about the progress you’ve made. When you create more specific goals – clean the living room, for example, you are working toward the larger goal of cleaning your house, but in a way where you can actually see progress.
Investing in your retirement is similar. A very broad goal might be to do just that: invest in retirement, but that’s not specific enough that you can cross it off a list and move on. Instead, you might start by making an appointment with a financial advisor, or gathering relevant paperwork for the ways you’re already investing. Eventually, you might move to contributing a higher percentage of your income to your 401k, diversifying your investments and planning future income streams to avoid gaps in employment.
MEASUREABLE – When you’re working toward any goal, one of the most motivating factors is seeing how much you’ve accomplished, so any goal you make should be measurable in a way that proves you’re moving toward achieving it. In the house-cleaning goal for example, if your main goal is to clean the entire house, you could spend a day doing a little here and a little there, but overall, the house is still messy and you wonder how you worked all day and seemingly accomplished nothing. You’ll only see progress when your financial goals get specific and measurable. You might focus on cleaning the areas in the most common spaces, so you can see and appreciate what you’ve done every time you’re in the space.
In retirement planning, you’re always taking steps toward achieving your goal. If you can’t afford to max out your 401k contribution at work, then one financial goal might be to increase your contribution every year, or every six months, until you’re able to cross that particular goal off your list. Once you’re able to see the impact of that higher contribution percentage every year, you’ll better value your dedication to accomplishing goals.
ACTIONABLE – When you’re defining goals, it’s important that in addition to being specific and measurable, the steps you’re taking to accomplish your goals are things you can act on. For instance, if you’re running a company and your goal is to increase profits by 20% – it technically meets the conditions of a S.M.A.R.T. goal. But the problem is you don’t actually control profit. Instead, you control things around profit – so more actionable goals might be to research when and why profits have increased in the past, consumer buying trends, designing new marketing strategies or collaborations, and the like.
Some organizations like to use the A for Achievable or Attainable, but we’re all talking about the same thing. Breaking down broad goals into actionable pieces takes the pressure off an ambitious goal and makes it more achievable in your mind.
REALISTIC – Your goals should align with your values and long-term objectives. If you’re thinking broadly about goals, you might think “I would like to make more money than I did last year” is a strong goal. By that estimation, you could earn a penny more and technically have met your goal. Instead, in using the term realistic, think of it in its simplest term: real. Under this model, to make more money than you did last year isn’t a realistic goal because it has no clear path. If you’re going to spend the time to seriously invest in your retirement, set goals that work for you, and make them relevant to your broader wants and needs.
TIME-FRAME – Lastly, you want to set a realistic, if ambitious, end-date. Businessman, investor and one of the titular personalities on Shark Tank, Robert Herjavec, has said that “a goal without a timeline is just a dream.” While goal-planning can be tedious, it’s what separates the millions of people who set goals, to the markedly fewer that actually achieve them.
A study at the University of Scranton found that a whopping 92% of people who set New Year’s Resolutions don’t achieve them. If that statistic resonates, you know that planning for your retirement needs to occupy a larger space in your life than your goals for weekly meal planning, but the process is the same. Setting a time-frame holds you accountable7 to yourself and anyone else who is relying on you to make progress, even incrementally, toward the larger goal.
How to Set Goals for Investments
Once you’ve established what your goals should look like, you’re ready to do the part many people find difficult: setting the goals. Innovation expert Hal Gregersen believes question-based goals deliver more than statement-based goals. Questions, he says, have the power to unlock new and positive behavior changes in every part of our lives. At the outset of your goals, asking questions of yourself might help you dive deeper to figure out what you really want. Some questions you might ask:
- What does retirement look like?
- How much do I need to save?
- How much risk am I willing to incorporate into my investments?
- How diversified do I want to be?
- How much income do I want each month?
- What types of investment vehicles should I invest in?
- How will I protect my investments?
- What time-frame will my investments have?
Most important to your tasks of questions and goal-setting, don’t neglect your wellbeing. Retirement can be stressful and even though there’s no guarantee of even our best-laid plans, you don’t want to take the risk of not planning at all. The better prepared you are, the more confident you can be when life goes off the rails and you have to make quick financial decisions. People who are stressed or overwhelmed, “cannot make big changes and aren’t likely to even try,” says BJ Fogg, a behavior scientist at Stanford University.
Give Your Goals a Boost
Let Fullerton Financial Planning help you set meaningful investment goals so you can retire with confidence. We’ll help you create realistic, and achievable financial goals that will set you on the right path to a retirement you can enjoy, not one spent worrying about what you can afford. Our team will work with you to shape the unique look of your retirement plan, we’ll analyze your financial situation, and identify opportunities to help put you on the right path to achieving your financial goals.
There’s never a bad time to start planning for retirement. If you’re starting early or if you feel you’re way behind, or if you don’t know where to start, we’re here to help wherever you’re at in the process. Sit down with a Fullerton Financial Advisor today and find out how you can get on track with your retirement goals.
