One of the estimates you are required to generate is the length of time that you must save and invest in order to achieve your financial goal, also known as your financial goal’s Time Horizon. This is a simple calculation to make. Simply subtract your financial goals' achievement date from the current date.
Example: If you are 40 years of age and you want to achieve your goal by the time you are 55 years of age, then your Time Horizon will be 15 years (55 less 40). Or if you wish to achieve your goal by 2020, then subtract the current year from the goal’s date. So if your goal’s date was set in 2011, then 2020 less 2011 calculates a Time Horizon of 9 years.
Note: When making your first Time Horizon calculation, keep in mind that this is an initial estimate and it may need to change as you progress through the 12-step process. For example, initially you may start out by estimating that you would like your financial goal to be accomplished in 20 years. But after coordinating this Time Horizon with your Financial Starting Point, the estimated dollar value of your goal, your annual savings rate, and the calculated required average annual investment rate of return, you may find that your initial 20-year estimate is inappropriate and that actually your goal’s Time Horizon will need to be revised to 30 years in order to achieve your goal. Or vice versa, you may be in a position to reach your financial goal sooner than the initial 20-year estimate. This being said, you need to begin somewhere, so begin with your dream or desired Time Horizon.
Remember: After making your initial estimate, you will need to be flexible and open to revising your estimated Time Horizon to improve the accuracy and success of your portfolio design. There is no sense in setting goals or Time Horizons if they are unachievable.
Now you are ready to move on to Step 4: Determine your Ability To Save