You have no control over the market, but you can control your financial destiny.
When it comes to planning your retirement, some things are easy. Figuring out where you stand right now is as simple as looking at your latest bank and broker statements.
Determining how much you'll need when you retire takes a bit more work, but you can make a good estimate without too much effort. The hardest part is finding the right path to get you from here and now to that last day of work years down the road, and then through the rest of your life.
Nothing Lies Like A Straight Line
A lot of retirement advice you read makes it sound as if travelling that path is easy. You can get a good idea of what average return you'll need to earn in order to reach your ultimate goal. Take a financial calculator, enter in how much you think you'll be able to save and what returns you'll achieve, and it'll happily spit out the exact amount you'll have on your 65th, 66th or 67th birthday, down to the penny.
In real life, however, things don't work that way. You'll earn more or less than you expected, or suffer higher expenses than anticipated. And you'll almost never see a year in which your portfolio rises by 10% (roughly the long-term average annual return for shares). As your circumstances change, you'll need to make some course corrections to keep you on the straight and narrow.
What You Can Control
The frustrating part of investing is how many things are beyond your control. Even when you're convinced that you're right about a certain share, it doesn't always cooperate on your time schedule.
And more often, what you might think of as a "sure thing" turns out not to be certain at all. Those who thought that investing money regularly into Royal Bank Of Scotland (LSE: RBS) or Lloyds Banking Group (LSE: LLOY) was a guaranteed path to long-term riches can certainly attest to that now.
There are, however, a number of things that you do have at least some control over. They include:
1. How much you save.
2. How much risk you take with your investments.
3. What types of assets you invest in.
4. When you retire.
5. What standard of living you want during retirement.
By adjusting these factors, you can deal with whatever happens in the years to come -- even if it ends up being a lot different from what your financial calculator predicted.
How To Stay On Track
Right now, many people don't have as much money as they thought they'd have by now. If you were counting on shares to return 10% or more for you, then the FTSE 100's negative overall performance over the past decade has likely created a big shortfall.
But you can choose how best to respond given your current situation. If you're in a position to boost your savings, then you might be fine keeping exactly the same investments you're making now. If you can't, then shifting some of your cash to conservative dividend-paying stocks such as Unilever (LSE: ULVR) and British American Tobacco (LSE: BATS) could help you add a bit more growth potential to your portfolio.
On the other hand, if you've invested well, you might actually be ahead of where you expected to be. If big investments in high-reward high risk growth shares like Autonomy (LSE: AU), Tullow Oil (LSE: TLW) and Climate Exchange (LSE: CLE) have paid off for you, then you don't need to take the chance of leaving that money on the table any longer.
Riding your gains may sound good, but remember that many people passed on taking big profits from Internet stocks in the late 1990s -- and sacrificed a fortune during the ensuing tech bust.
Stay Focused On The Goal
Change is inevitable, but it doesn't have to derail your plans. If you can filter out all the turbulence and noise and focus solely on reaching the goal you set for yourself, then you'll be able to stay on the path to true wealth.
More on the economy and the markets:
> If you're in the market for buying and selling shares, consider opening an online broker account with The Motley Fool's Share Dealing Service. You can buy and sell shares in real time for a flat rate of just £10. Find out how you can open an account for free today. There is no obligation to trade.
> A version of this article was originally published on Fool.com. It has been updated by Bruce Jackson, who doesn't have an interest in any of the companies mentioned in this article.
