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How to Measure the Health of Your Retirement Plan

Is your retirement plan working? It's a question that most of us would have trouble answering, regardless of the effort we put into our financial well-being. A retirement plan, too often, is seen as being similar to an insurance policy. Once arrangements have been made, it is placed in a drawer until circumstances demand its release.

But even a cursory knowledge of property investment, financial markets and economic variables is enough to tell anyone that there is far too much uncertainty to take the health of your retirement plan for granted. But how can you gauge whether your retirement plan is on the right track or not? 

Conduct Regular Reviews

Importantly, "regular," doesn't mean, "constant." A review once every six or twelve months is more than enough to evaluate whether you're taking the right actions consistently. Of course,  in order to effectively ascertain whether you are taking right action, is an understanding of not only what you are trying to accomplish, but the best possible actions to achieve those goals. Don't measure inputs that don't matter, instead focus on critical measures that can mean the difference between success and failure. Speak to your advisors in order to identify these measures.

 Act like a Roman

Or a Greek philosopher, depending on which history books you read. Stoicism is a philosophy forged in ancient times that advocates an emotionless and balanced view of the world. Its most famous advocate, Roman Emperor Marcus Aurelius, used stoic methodology to plan wars and govern one of the largest empires the world has ever seen. Good investors use similar thinking when analysing the effectiveness of their retirement plan.

When conducting your regular analysis, evaluate the success and failure of the various initiatives based on their merits. Don't worry about hypotheticals, or, "what you thought might happen" because according to Stoicism, emotions cloud the brain and prevent people from making effective decisions.

 Avoid "Second Stage Hypotheticals"

Every investor has fallen victim to, and/or profited from hypothetical outcomes. These are the "maybes" that are presented as probabilities and are sold in such a way that they encourage you to take action. Some are useful, and many are not and one of the toughest parts of being an investor is deciding which is which. When it comes to your retirement plan, you should use your regular health check to make sure you are not working with second stage hypotheticals. These are the circumstances that may arise if at least two things occur. For example, a first stage hypothetical would be that if a political leader takes X action, then the impact will be Y. As a result, you can take action based on X.

A second stage hypothetical would be that if a political leader takes X action, and another political leader takes Y action, then Z would happen. To reach the Z outcome, to separate things need to occur.

A retirement plan is not the place for second stage hypotheticals. Save them for your other investment portfolios, and focus on predictable, easy to control inputs.



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