Time Horizons and Retirement Planning

A time horizon is the amount of time you need to achieve a goal, whether personal or financial. Your retirement time horizon is both. Understanding what your time horizons are, and how they can change is crucial in planning for a comfortable retirement.

Terry Turner, writer and researcher for RetireGuide
  • Written by
    Terry Turner

    Terry Turner

    Senior Financial Writer and Financial Wellness Facilitator

    Terry Turner has more than 35 years of journalism experience, including covering benefits, spending and congressional action on federal programs such as Social Security and Medicare. He is a Certified Financial Wellness Facilitator through the National Wellness Institute and the Foundation for Financial Wellness and a member of the Association for Financial Counseling & Planning Education (AFCPE®).

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  • Edited By
    Lamia Chowdhury
    Lamia Chowdhury, editor for RetireGuide.com

    Lamia Chowdhury

    Financial Editor

    Lamia Chowdhury is a financial content editor for RetireGuide and has over three years of marketing experience in the finance industry. She has written copy for both digital and print pieces ranging from blogs, radio scripts and search ads to billboards, brochures, mailers and more.

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  • Financially Reviewed By
    Brandon Renfro, Ph.D., CFP®, RICP®, EA
    Brandon Renfro, RetireGuide Reviewer

    Brandon Renfro, Ph.D., CFP®, RICP®, EA

    Retirement and Social Security Expert

    Brandon Renfro is a Retirement and Social Security Expert and financial planner. He focuses on helping clients create a secure financial future in retirement and co-owns Belonging Wealth Management. He is also a former finance professor and writes for several publications.

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  • Published: May 10, 2023
  • Updated: June 8, 2023
  • 7 min read time
  • This page features 4 Cited Research Articles
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A qualified expert reviewed the content on this page to ensure it is factually accurate, meets current industry standards and helps readers achieve a better understanding of retirement topics.

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How to Cite RetireGuide.com's Article

APA Turner, T. (2023, June 8). Time Horizons and Retirement Planning. RetireGuide.com. Retrieved May 19, 2024, from https://www.retireguide.com/retirement-planning/investing/time-horizon/

MLA Turner, Terry. "Time Horizons and Retirement Planning." RetireGuide.com, 8 Jun 2023, https://www.retireguide.com/retirement-planning/investing/time-horizon/.

Chicago Turner, Terry. "Time Horizons and Retirement Planning." RetireGuide.com. Last modified June 8, 2023. https://www.retireguide.com/retirement-planning/investing/time-horizon/.

Key Takeaways
  • Time horizons can be short, intermediate or long-term.
  • Your retirement time horizon has personal and financial implications.
  • The longer your time horizon, the more investment risk you can accept.
  • Your time horizons can change; your retirement strategy may need to adapt with them.

What Is a Time Horizon?

A time horizon is the number of weeks, months, years or decades you require to reach a goal. That goal may be financial in nature – such as how long it will take you to save enough money to buy a car. Or you might have a time horizon for a lifestyle decision – like how many years you need to complete a degree.

When it comes to retirement planning, your time horizons are often both lifestyle- and investment-oriented. Time horizons vary for each individual person, goal and investment. They can change over time as your needs and plans change but generally can be sorted by length into three major types.

After you decide on a time horizon for goals, consider if you can be flexible. Allowing your time horizon to move, sometimes even just a little, can be a great way to reduce risk. This is especially true of retirement.
Common Time Horizons
Short-Term Time Horizon
A short-term horizon can be anywhere from a few months to a few years. A short-term horizon is a plan you can enact relatively quickly, usually within three years. For example, in your 60s, your retirement is likely a short-term time horizon.
Intermediate-Term Time Horizon
An intermediate- or mid-term horizon can range between three to 10 years, depending on the goal. An intermediate horizon means you’ll have a little longer to achieve your goal but you’re not making a lifelong plan. In your 50s, your retirement is probably an intermediate-term time horizon.
Long-Term Time Horizon
A long-term horizon extends for ten years or more. It could be much longer, such as several decades into the future. For example, in your 20s, your retirement is most likely a long-term time horizon.
time horizon example infographic

What Factors Affect a Time Horizon?

When it comes to planning your retirement, the factors that affect your time horizon are unique to your situation. Your age, retirement goals, income and health status all come into play. As these factors interact, they can sometimes cause you to shift your time horizons.

Factors That Affect a Time Horizon
  • Age: the closer you are to your desired retirement age, the shorter your time horizon.
  • Goals: the larger your goals, the longer your time horizon might be.
  • Income: the larger your income, the shorter your time horizon.
  • Health: the state of your health can cause abrupt changes in your time horizon.
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Why Is a Time Horizon Important for Retirement?

Having a time horizon is important because it’s the first basic step in retirement planning. In order to make a successful plan, you need a starting point. Namely, when do you want to retire? In three years? 10 years? 30? It‘s important to have a solid sense of when you intend to stop working. The earlier you know the better, because it allows you to create the foundations for a financially comfortable retirement.

Time horizons are significant because they help you make informed financial decisions as you navigate retirement. Your retirement income planning, investment decisions and overall strategy will depend on your time horizon.


How Do You Determine Your Time Horizon for Retirement?

Once you know when you want to retire, you’ll know what your time horizon is. The years between your current age and your desired retirement age will determine the length of your horizon. The further your retirement time horizon is, the more time you have to save for it.

RetireGuide’s retirement calculator can help you check the health of your retirement savings to see if you’re on the right track or if you need to make adjustments to your savings strategy.

Time Horizons and Investments

Generally speaking, the longer your investment time horizon, the more time you have to generate growth and compound interest. You can contribute smaller amounts each month so your daily life is not impacted.

Long-term time horizons typically lessen your exposure to risk. The longer you have to invest, the easier it is for your money to overcome short-term drops in value. You can invest in products with higher risk, like stocks and other equities, and take advantage of the higher returns they can bring.

Short-term time horizons are more susceptible to market volatility, thus many short-term investments focus on safer products, like high-yield savings accounts or certificates of deposit (CDs). With this method, your money has a chance to earn a little extra while still being accessible – without being subject to a sudden plunge in the market.

When investing with an intermediate-term time horizon, you can do a little of both. Since you don’t need your money immediately, you can choose to put some of it in high-risk investment products like stocks and grow your retirement savings with higher returns. At the same time, you can also invest in more risk-averse products such as bonds, and protect your principal while still having access to it.

It’s smart to use all three timelines in your retirement investment strategy. That way, if you have a sudden change in circumstance – for example, unexpected home repairs or a health incident – you can shift savings from a long- or intermediate-term time horizon to your short-term savings for immediate access.

Strategies for Managing a Time Horizon

Making your retirement plan is only the first step in the ongoing process of reviewing and adjusting your investment strategies. Some of those adjustments will be determined by your time horizons.

For instance, say that in your 30s, you’re making regular contributions to your 401 (k) or IRA. Then, in your 50s, as your earning power increases and your timeline moves closer, you may increase the amount you invest every month. Then, as you near your desired retirement age, you likely choose to switch your contributions to low-risk products instead of into your IRA, to build a cushion for immediate use.

Diversifying your portfolio goes hand-in-hand with time horizons. With a long-term time horizon, you might weigh your investments heavily with equities, since the distant outlook means you can balance any risk against the potential for growth. In the intermediate term, a more evenly balanced approach between stocks and bonds might be appropriate. And in the short term, the balance tips in the other direction, leaning heavily on conservative investments like bonds, CDs, money markets and high-interest savings accounts.

As your timeline changes, so should the proportion of your portfolio. The farther away you are from retirement, the more risk you can accept. The closer you come to your retired retirement age, the more conservative your portfolio should be.

Frequently Asked Questions About Time Horizons

What is the impact of inflation on a time horizon?
Inflation tends to happen over time but sudden spikes can eat away at your investment returns. Bonds are more susceptible to inflation than stocks, especially in the short term. Therefore, you may have to adjust the time horizon on some of your investments.
What are some factors that can affect your time horizon?
Your age, health status, income and retirement goals all affect your time horizon. As these factors change, your time horizon can shift as well.
How do you balance risk and reward based on your time horizon?
Generally speaking, longer time horizons allow for more risk since you’ll have time to overcome any losses and compound interest. The shorter your time horizon, the less exposure to risk you can accept.
Can you adjust your time horizon as your financial situation changes?
Yes, should your financial situation change (in either a positive or negative direction) you can adjust your investment time horizon. This may mean rebalancing your portfolio to either embrace or reject risk.

Editor Malori Malone contributed to this article.


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Last Modified: June 8, 2023

4 Cited Research Articles

  1. US Securities And Exchange Commission. (2023). Time Horizon. Retrieved from https://www.investor.gov/introduction-investing/investing-basics/glossary/time-horizon
  2. Chladek, N. (2021, July 29). Understanding Time Horizons of Alternative Investments. Retrieved from https://online.hbs.edu/blog/post/investment-time-horizon
  3. US Securities And Exchange Commission. (2015). Beginner’s Guide to Asset Allocation, Diversification, and Rebalancing. Retrieved from https://www.investor.gov/additional-resources/general-resources/publications-research/info-sheets/beginners-guide-asset
  4. US Securities And Exchange Commission. (2009, August 28). Beginner’s Guide to Asset Allocation, Diversification, and Rebalancing. Retrieved from https://www.sec.gov/about/reports-publications/investor-publications/investor-pubs-asset-allocation