During the Second Step of the Financial Planning Process, “Gathering Data,” you will need to define your personal goals as they relate to your finances and understand your timeframe for results. The more specific and immediate your goals and the timeframes for completing them, the better your planner can provide you with a plan for reaching them.
Of course, some goals are harder than others in estimating timeframes. For example, if you know how old your kids are, you have a pretty good idea of when they might be in college, even if you have no real idea when you will be able to or want to retire.
The closer a goal is at hand, the more accurate you can and should be. Someone in their mid-sixties should have a better idea about his retirement goals than I do, although not everybody does, and of course, circumstances change all of the time. Many people in their fifties and sixties, who planned to retire now, have had to postpone their retirement because of the economic crisis.
You should communicate your goals as clearly and with as much certainty as is possible under the circumstances. Spending some time discussing them with a planner should help you to quantify them. Most people come in with some amorphous ideas and we try to get them to think about them and be more specific. The more specific your goals are, the better you will be able to plan for them.
Of course, your goals will change throughout your life. You are not going to be held accountable for attaining some goal you stated thirty years ago. It is a forward-looking process, and as your goals change, you will adjust your plan along the way.
Here is the type of specificity I am suggesting. Saying you want to retire “young and rich” might sound nice, but it has no definite meaning. Expressing your goals with a specific income and age is much better. For instance, it would be better to restate your goal of retiring “young and rich” as “I want to retire at age 62 and live on 80% of my current salary adjusted annually for inflation.”
Even when you quantify a retirement age and an approximate income, any time you plan far into the future, there is still a lot of guesswork and estimating involved in the planning process. Planning done far in advance is inexact to say the least.
