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Three things you can control in retirement planning

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(Read caption) A group of people play mahjong, a traditional Chinese game, at the cafeteria in the Cherish-Yearn care center in Shanghai September 14, 2012.

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When markets are “volatile” — a euphemism for saying markets are lousy — investors long for a way to gain control and restore equilibrium. We want to create order amid chaos and uncertainty. No one can predict the markets, but financial planners can help clients look elsewhere for peace of mind.

For all its complexity, retirement planning can be distilled into three basic variables, all of which allow you a certain degree of control:

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  • How much you save before retirement.
  • How much you spend during retirement.
  • How much market risk you will take with your portfolio along the way.

Here’s a look at each of these variables, and how understanding them can help you feel more in control:

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How much you save for retirement

The amount you save for retirement is at least partially within your control. It may be difficult, but increasing the amount of money you contribute to your retirement plan can make the market return less important. (For example, if you invest $1,000 for 10 years at an annual return of 7%, you’d end up with a little less money than if you’d invested $1,100 for 10 years at 6%.) And increasing your contributions after a nasty patch in the market has the added bonus of adhering to one of the most obvious pieces of market advice — buy low, sell high.

Finding room in your budget to increase savings may not be easy. But if the markets make you uneasy and you need to find a way to do something about your emotional response, saving more should become a priority.

How much you spend after you retire

The flip side of what you save for retirement is what you will need to spend during retirement. We spend a lot of time with clients nearing retirement trying to quantify how much they will need to maintain the lifestyle they want — and, since we never know how long anyone will live or what twists and turns they may encounter along the way, it is impossible to be certain. However, there are some things we can do before retiring to help control future expenses and take the emphasis off of our portfolio return and the unpredictable markets.

For example, paying off a mortgage lowers your expenses during retirement. Often, this isn’t the best move on paper. The extra money you put toward paying off your home is money you can’t invest in the market. Unless the home debt has a high interest rate, you’re trading a potentially higher, but variable, return on those funds for a smaller, guaranteed return. However, the psychological reward of simultaneously reducing debt and consciously reducing your reliance on a volatile market can be worth the trade-off.

Perhaps the best way to take control of retirement spending is to be flexible about whenyou will retire. Obviously, in some situations this is beyond your control. But for most of us, our job is our biggest asset. If your job was a preferred stock, and you earned $50,000 in dividends from it per year, that stock would be worth about $1 million. Most of us would be slow to abandon such an investment.

The year you retire, you go from contributing to your portfolio to relying on it for at least part of your income for the rest of your life. One year can make an immense difference in your plan’s long-term success.

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I would never want clients who are miserable at their jobs to stay on the clock a minute longer than necessary. However, if you struggle with concerns about the market and its effect on your retirement, this is an element to consider.

How much risk you are willing to take

Lastly, you can control how much risk you take with your investments. This variable ties the other two together: Over time, taking more risk should lead to higher returns. That means you should be able to save less along the way as higher returns help grow your portfolio — or you should be able to spend more in the future. However, it is that same risk that leads us to wring our hands and worry every time the market takes a dip. For some of us, the better approach is to take less risk and plan to save more and spend less.

We can’t control the markets, but we can control our exposure to the markets. So, if volatility is not for you, consider the risks you are taking and make a plan to become more conservative in the future. But remember that moving from stocks to something “safer” in the midst of a lousy market is the same as making your losses permanent, so talk with an advisor about ways to become more conservative over time, as the markets improve, or as you add new funds to your portfolio.

We can control our response when markets misbehave. The best way to moderate that response it to take a deliberate approach, consider your priorities — spending less, saving more, and taking less risk in the future — and focus on the elements of your financial life that you can control.

This article first appeared at NerdWallet.