There are short-term goals and long-term goals and some goals that fall in between. The distinction between the categories is usually related to the amount of time it takes to accomplish the goal and the financial commitment to achieve them. Short-term goals are achieveable in the more immediate future and intermediate goals take slightly longer and more of a financial commitment. Long-term goals usually take more than five years to accomplish and require a disciplined saving and investing strategy over a long time period. The most important long-term financial goal for everyone is to save for retirement. For most people, this is the first priority over saving for any other goal.
The first step is to develop good savings and investing habits and establish a financial plan when you’re young. If you start contributing to an employer’s 401(k) plan or an IRA or Roth IRA as soon as you begin working, and consistently put money in those retirement accounts, you’ll be on the right track to accumulate enough money for your retirement years.
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There are a few ways to become a disciplined saver and investor. Below we share a few long term goal examples.
- Set up automatic investments to your retirement plans and investment portfolio to help you avoid spending your hard-earned money when you get a paycheck. When you don’t see money in your bank account, you won’t spend it. Instead, you’ll be saving for your goals and your investment account will grow in value over time.
- Try not to be emotional about your investments and don’t jump in and out of your holdings when the market is volatile.
- Monitor your investments and risk regularly, and make adjustments to your portfolio when needed.
Even the most disciplined investor can expect some bumps in the road like the loss of a job or a family member who becomes ill and requires care. Likewise, events that might seem far away initially can somehow sneak up on you.
Long Term Goals Example:
one of your long-term goals is saving for your daughter’s college education, which is six years away. However, more recently your daughter decided she wants to attend a private high school, resulting in you tapping into your higher education savings. As long as you started saving when your daughter was young, you may have enough to cover both private high school and college — or you could increase your savings now to pay for college.
Experienced financial advisors can help you navigate unexpected events and tricky situations. Here are some other things to consider as you set your long-term goals.
Time value of money
The time value of money – a key concept in finance – is simply the increase in the amount of money as a result of interest earned over a period of time. Essentially, the earlier a person starts to invest, the greater the power of compounded interest over time.
Long-Term Goals Example:
with as little as $50 from each paycheck ($100 a month or $1,200 a year), you have contributed $48,000 after 40 years. Assuming a seven percent annualized rate of return, you would have more than $260,000. Use our Time Value Calculator to see how the time value of money works.
The bottom line is: Start investing as young as you can – even if it’s a small amount – to get the most bang for your buck. Reinvesting any earned dividends and interest from investments over time purchases additional shares in your account which can help increase the value of portfolios – especially for long-term goals like retirement.
Monitor your investments
It’s important to check your investments regularly. We recommend personally reviewing your portfolio on a quarterly basis and meeting with your investment advisor at least twice a year. Manage your risks by making sure your chosen asset allocations are still in line with your overall goals. Make adjustments to your investments only when needed. One of the benefits of having an investment advisor is he or she can monitor your funds for you and recommend different investments when it’s necessary. Also, remember to revise your financial plan accordingly if your goals change or you identify new goals.
Withdrawing money from your retirement funds
When you stop working and have reached your goal of retirement, you’ll need to figure out how much and when to withdraw money from your retirement accounts. There are some tax rules you need to follow as well. When you turn 59½ years old, you’re allowed to withdraw money from a tax-deferred retirement account like a 401(k) or IRA without a penalty. When you turn 70 ½, there are required minimum distributions (RMD), which is a certain amount of money that’s determined by your age and value of your investments that must be withdrawn each year from your IRA or 401(k). If you don’t take the RMD on time, you’ll get hit with a 50 percent tax penalty of the amount you’re required to withdraw. Your first RMD can be taken by April 1st following the year you turn 70 ½ years of age. Subsequent RMDs must be taken by December 31st.
Aside from the RMD, you don’t want to take out too much money from your retirement accounts and deplete your savings too quickly. The Government Accountability Office (GAO) recommends annual withdrawals of three to six percent of the value of your investments in the first year of retirement, with adjustments for inflation in later years.
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When it comes to Social Security benefits, generally the longer you put off your start date to receive them, the more money you’ll get. This strategy may not be right for every circumstance, so please review our article on Social Security for more information.
What to do next
- The most important long-term goal is saving for retirement. After saving for retirement, any additional money can be earmarked for other goals.
- Long-term goals can be achieved by being a disciplined saver and investor.
- Consider the time value of money – which shows that investing when you’re in your 20s or younger will produce a larger nest egg than if you start saving at age 30.
- Review your portfolio on a quarterly basis and visit with your investment advisor at least twice a year. Make adjustments to your investments only when needed. If your goals change, revise your financial plan.
- Be careful about how much and when you withdraw money from your retirement accounts. Plan your Social Security strategy carefully and consider the tax consequences of withdrawing money from your investment accounts and collecting Social Security.