Vanguard Guide Helps Define Retirement Goals, Risks, and Resources

Vanguard analysts have published a new framework to help guide retirees as they set investment goals, define their risk budget, plan for health care expenses, and tackle other challenging tasks.  

Vanguard has published a “simple, easy-to-understand framework” to help new and established retirees prioritize conflicting financial goals.

“From constructing an investment portfolio to considering health care options, retirees face unique decisions on complex issues, which can be daunting. Our framework is both practical and prudent, giving retirees guidance and confidence in making thoughtful financial choices,” says Colleen Jaconetti, a retirement planning expert in Vanguard’s Investment Strategy Group.

Dubbed “The Road to Retirement Security,” the framework helps retirees address basic living expenses, establish a contingency reserve, account for discretionary expenses, and structure a legacy. Each individual can prioritize these goals differently, the firm explains, balancing cash flow goals of meeting immediate expenses and reserve goals, such as leaving assets to heirs.

According to Vanguard, retirees next need to understand and address potential risks, including market risk, health risk, longevity and mortality risk, event risk, and tax and policy risk.

“All investors face corrections and bear markets; such large pullbacks have occurred every two years on average since 1980, according to Vanguard’s Investment Strategy Group,” the firm notes. “Inflation is also a risk, with the potential to erode a retiree’s purchasing power over time. For investors holding bonds in their portfolios, rising interest rates are another factor to consider, with the potential to decrease the value of a bond portfolio. Rising rates can also increase the cost of some annuity products.”

Vanguard further points to health risks as a major retiree consideration, which can vary greatly depending on genetic and lifestyle factors; the amount of available support from the government, an employer, or private insurance; and the desired level of care.

The next step in Vanguard’s framework is a thorough evaluation of available resources, which will enable retirees to achieve their highest-priority goals while managing the accompanying risks. These can include guaranteed income such as Social Security or a pension plan, liquid assets, and additional resources such as work after retirement.

The final step is developing a plan that accounts for competing priorities, risks, and finite resources, given a retiree’s unique circumstances, the firm explains. Vanguard believes a well-formulated plan, combined with ongoing oversight and evaluation, will give retirees the best chance to achieve financial security.