Why is it important to have a retirement plan?

A retirement plan is essential because it helps ensure that sufficient savings are available during retirement. This involves assessing current financial status, estimating future expenses, and setting savings goals so that individuals can accumulate the needed assets to maintain their desired lifestyle once they stop working. Having a structured retirement plan allows individuals to visualize their long-term financial needs and take proactive measures to meet them, such as saving consistently and making informed investment choices.

In contrast, while diversification of income sources and strategies to reduce taxable income can be beneficial components of financial planning, they are more auxiliary to the core purpose of securing enough funds for retirement. High-risk asset allocation might not be suitable for everyone, especially as they approach retirement, where capital preservation becomes more crucial. Therefore, the central aim of a retirement plan is to assure that individuals do not outlive their savings and can enjoy a comfortable retirement without financial stress.