Which goal is the most useful for setting investment priorities?

Which goal is the most useful for setting investment priorities?

• A. "I'm not sure when we'll retire, but we want to be able to travel for 10 or so years at that time."
• B. "We want to buy a big house in a nice neighbourhood."
• C. "We will need 70% of our current income level to retire and maintain our lifestyle."
• D. "I want to be able to retire comfortably based on my current lifestyle."

Answer: (C)

The goal of needing 70% of the current income level to retire and maintain the desired lifestyle is the most useful for setting investment priorities because it provides a specific and measurable target for financial planning. By quantifying the income needed in retirement, individuals can work backwards to determine how much they need to save and invest over time to reach that goal. This clarity enables more focused investment strategies and aligns with the principles of financial planning, which emphasize goals that can be tracked and assessed. Moreover, stating a percentage of current income as a target gives a clear benchmark for financial advisors or planners to calculate the required savings rate, investment allocation, and potential adjustments needed throughout the investment period, taking into account factors such as inflation and changes in expenses during retirement. This goal also allows for practical budgeting, helping to prioritize saving and investment strategies effectively. In contrast, the other choices present goals that are more vague or subjective, making it difficult to set clear investment priorities. For instance, wanting to travel during retirement lacks specificity about the costs associated and timeframe, while the desire for a big house does not link directly to retirement savings and can vary greatly in price depending on various factors. Similarly, aiming to retire comfortably based on the current lifestyle is somewhat ambiguous without understanding the financial implications

The goal of needing 70% of the current income level to retire and maintain the desired lifestyle is the most useful for setting investment priorities because it provides a specific and measurable target for financial planning. By quantifying the income needed in retirement, individuals can work backwards to determine how much they need to save and invest over time to reach that goal. This clarity enables more focused investment strategies and aligns with the principles of financial planning, which emphasize goals that can be tracked and assessed.

Moreover, stating a percentage of current income as a target gives a clear benchmark for financial advisors or planners to calculate the required savings rate, investment allocation, and potential adjustments needed throughout the investment period, taking into account factors such as inflation and changes in expenses during retirement. This goal also allows for practical budgeting, helping to prioritize saving and investment strategies effectively.

In contrast, the other choices present goals that are more vague or subjective, making it difficult to set clear investment priorities. For instance, wanting to travel during retirement lacks specificity about the costs associated and timeframe, while the desire for a big house does not link directly to retirement savings and can vary greatly in price depending on various factors. Similarly, aiming to retire comfortably based on the current lifestyle is somewhat ambiguous without understanding the financial implications