Sunday, June 10, 2007

It's Really All About Asset Allocation: Part 1 of 2

One thing I learned at Merrill Lynch was a great system for retirement planning. The system is much like any Algebra course where you simply solve for the unknown. There are several main variables that go into the retirement planning equation: current age, desired retirement age, life expectancy, current income, expected annual raise, desired annual income in retirement, current retirement savings, and retirement portfolio. At Merrill Lynch our clients new their desired end of the retirement equation (desired retirement income). What they wanted to know was how to make the retirement variables achieve their goals. In order to do this, we simply established the rest of the knowns and found what mix of investments would allow them to reach their goals.

I have a beef with Fidelity's myPlan because it simplifies the retirement equation too much and gives no advice on an investment direction. The calculator asked what my desired investment style was, and I thought to myself, well that depends how close to my retirement goal I was. See this is how most people should think we planning their retirement investments; what asset mix gets me to my goal.

CNNMoney's retirement calculator is far superior to Fidelity's because it takes out all assumptions and offers an appropriate asset mix. I will share my retirement check in Part 2 of the series!

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