Everyone knows that it is necessary to invest periodically to create a reserve for retirement. However, few manage to accumulate the necessary capital when it comes time to reap the benefit. The biggest villain of this fact is the ignorance or disregard of the strategy to get there.
We use this strategy in many of our activities, but when it comes to our heritage, we disregard what we have learned.
For example, when you leave the house to go to work, you set a goal, which is to get to the office. When you leave, you think about the routes, look at an app to see the traffic, select the route and head towards the goal. Halfway through, you check the traffic app and eventually change your route if the initial route turned out to be worse than expected.
This is what needs to be done to arrive at your retirement wealth: set the goal, plot the initial route, monitor the chosen route to adjust.
The first step, therefore, is to choose the objective, that is, the value that you need to have just before retiring. To choose the objective, the 4% rule can be used. I explained in a previous article about this rule. It’s worth understanding, but I’ll describe the steps.
Just think about what your monthly cost would be when you retire. Multiply that number by 12 and then divide by 0.04.
So, if your monthly cost is R$10,000, multiplying by 12, you get an annual cost of R$120,000. Dividing by 0.04, we arrive at the equity of R$ 3 million.
Having chosen the objective, now we need to select the route to get there. The route is represented by the investment decision until reaching the objective.
To decide on the route four factors are needed. The first is the starting point, that is, what is your initial financial equity. Second, you must evaluate what amount you can contribute monthly to add to your initial investment. The penultimate factor is represented by the return to consider on investments until retirement. Finally, it is necessary to define the period from the beginning of the investments to the achievement of the objective.
Note that when defining the trail, you may conclude that it is not possible to reach the chosen heritage goal. In this case, it will be necessary to define another route.
With the starting point and the end goal, it is possible to select a multitude of routes. In tomorrow’s article, I’ll teach you how you can calculate these routes yourself and simulate different paths to understand which one is best for you. I will explain the steps for you to use a financial calculator that will be available for your use.
Staying on the trail is just as important and challenging as setting the trail.
After defining the objective and the route, the work continues with the discipline of monitoring the route and, eventually, adjusting it.
Here I return to the analogy with the commute from home to work. The first step was to define the office as the point of arrival. On the way to the office, you don’t deviate from the route and go to the beach, right? In investments this is very common among investors.
Several people along the way use the reserve for the down payment of an apartment. They buy a car as a gift for meeting goals. Almost like a person who after the gym goes to the candy store to reward himself for the discipline of going to the gym.
Part of the job of monitoring the course is the discipline of staying on course. Whether you want to buy an apartment, a car or take a trip. Plan this new goal. One should not use the resources of a goal to benefit another that seems more attractive in the short term, as there is a risk of not being able to reach the previous goal.
In the challenge of following the initial route, it is always necessary to assess whether the selected monthly contribution and return factors are being met.
It is possible that at a given time, your income will fall and you will not be able to maintain the planned contributions. Thus, you need to review the return and term to compensate for this deviation.
Likewise, an unfavorable market condition can compromise short-term returns. At these times, it would be important to compensate for this deviation with larger monthly contributions or a review of the term.
Increasing the term is always the simplest factor that provides the least impact on the investor’s effort to reach his goal.
If you properly plan and implement these three steps, you’ll reach your retirement with peace of mind and enjoy several years of peace. The effort pays off, I assure you. After all, you don’t want to depend only on the INSS.
As promised above, in tomorrow’s article (Monday) I will explain in detail how to plan the route to your retirement. And on my Instagram this Monday at 6:18 pm I will take your questions about how to plan the route to your peaceful retirement, exclusively for De Grão em Grão readers.
Michael Viriato is an investment advisor and founding partner of Investor’s House
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I have over 8 years of experience in the news industry. I have worked for various news websites and have also written for a few news agencies. I mostly cover healthcare news, but I am also interested in other topics such as politics, business, and entertainment. In my free time, I enjoy writing fiction and spending time with my family and friends.