Retirement is one of the most important topics in personal finance. Unfortunately, very few individuals plan for their golden years thoughtfully. Contributions in 401(k) and/or IRA is good, but successful retirement planning goes beyond that. If you want to retire like a boss, you should take the first essential step: planning. Let the article guide you through the process of planning.

First and foremost, you must pinpoint your financial goals and objectives, resources, time frame, and risk tolerance. Take your risk tolerance into account. Most people tend to be aggressive in rising markets, and conservative in falling markets. Concentrate on this area and consider your possible reaction to highly volatile markets.

Next, design or modify your asset allocation strategy based on your current financial situation. Asset allocation refers to how investments are distributed between cash, bonds, and stocks. Such strategy works on the modern portfolio theory in which several asset classes can downsize the portfolio’s volatility. This mechanism enables a person to reach his or her goals, a huge part of plan implementation. Aside from that, asset allocation can safeguard you against at least one detrimental investor behavior: panic buying. It should be consistent with your financial goals and risk tolerance.

As you go along the planning process, you can uncover significant details about you. By figuring out your needs and understanding your risk tolerance in attaining your goals, your asset allocation can give an expected, not guaranteed, 10% return on your portfolio.

Lastly, do not just hope for the best results. Rather, take a cautious approach to forming a portfolio. A well-planned portfolio allows you to know whether your goals are feasible or not. If you have set a higher a much return, this could lead to having a higher standard deviation or an unacceptable risk. Aside from that, you could sustain substantial declines in your portfolio, especially in a severe bear market. And if goals are deemed idealistic, you might end up choosing between saving more and considering a lower income target.

Retirement planning is one of the most crucial matters in personal finance. Hence, one should undertake it seriously. To achieve success, an individual should develop a plan with proper asset allocation, appropriate risk parameters, realistic financial goals and objectives, and suitable behavior. And most importantly, befriend diversification for it reduces – not eliminates – market risk.