Essential steps for comprehensive retirement planning

Retirement Planning

A comfortable retirement is a goal for most workers, but ensuring that comfort takes planning and foresight. Planning for retirement is much more complicated than opening a bank account or belonging to an employer-sponsored pension plan. While these are excellent beginnings, workers must plan for any and all events that can and will happen after retirement. Employees not only need to plan for retirement income, but they must also plan for the disposition of assets upon death. Employees need to decide where they will live after retirement, how tax matters with be handled, what insurance will be needed, and the list goes on.

Planning for retirement should begin as early as possible in life. With some careful thought, however, the planning process can be started at any time. The secret is to actually put together a plan at any age, however, the sooner workers begin planning, the more time they will have to build an investment portfolio to generate retirement income. Avoiding the most common pitfall is key: "One the first mistakes people make when it comes to retirement planning, or lack of it, is not coming up with a good estimate for how much they need to have in the bank before they can quit work for good" (Max).

The first step in retirement planning is to start putting money aside for income. Once the investments are set up, they should be monitored with a broker or financial advisor. It's important for workers to set up tax strategies that will protect their assets and limit tax liabilities after retirement, and its important to remember that retirement can last for 20, 30 or more years. When retirement age approaches, workers should start to thinking about where they would like to retire and whether or not they plan to travel.

For married couples, retirement planning with the spouse is essential. Couples should discuss retirement plans in detail; chances are both spouses with retire at about the same time so they need to be in agreement on this critical part of their life. If both spouses have a career, they will both be contributing to the retirement fund. Both parties should agree on the plan and work together for mutual benefit. If both have a career or job, both incomes need to be taken into consideration and planning should be done accordingly. Couple should consider the types of insurance both spouses will need and consider how that will affect their retirement income. Once a couple reaches retirement age, they will probably not require as much income for living expenses but could be paying out huge amounts for insurance premiums or health care. "Look for investments that will give you steady growth with a minimum of taxable income. And never make assumptions about the tax consequences of your investments -- read the fine print" (Dratch).

Getting started can be the hardest part of a retirement plan because retirement age seems a part of the distant future. However, procrastination could cause workers to lose thousands of dollars and could mean the difference between a comfortable retirement and one where a person is barely getting by. People between the ages of 20 and 40 are typically buying a house, a car, furniture, and thinking about their kid's college fund. At this age, people often think they can't afford to save for retirement at this time, but even a small amount invested wisely could be very beneficial in years to come.

Setting goals and budgeting

The first step in retirement planning is listing goals and creating reasonable budgets. Workers should decide what's most important to them: "With those "core" values identified, a financial plan can be built to help make the dream an eventual reality, while helping the client incorporate those ideals into day-to-day living" (Weston). People should consider whether they want to travel, move to a warmer climate or buy a vacation home. Whatever the goals, an income is necessary to support them. It's important for current employees to be realistic about their goals in order to accurately calculate how much money they will need in retirement. "Figure out what you need coming in each year to live the way you'd like, and allocate your money accordingly" (Dratch).

The next step is budgeting. Experts recommend that employees keep a current journal of how much they spend in order to see where the money is going and be able to better manage expenses. A solid budget must include a payment to a retirement savings fund even if it's only a few dollars a week. A crucial part of budgeting is avoiding unnecessary and excessive spending.

Even the best retirement plan could be in serious trouble if individuals allow themselves to dip into it for frivolous luxuries. If the budget doesn't seem to cover all a worker's expenses, chances are the employee is confusing necessities with luxuries. Little things eat away at a budget; an individual doesn't have to do without luxuries or treats as long as he or she is spending wisely.

Next steps

Once employees have some idea of the investing choices, they need to do their homework and decide just where they are in the retirement planning stage. Choices need to be made as to where they will invest money and how much they can afford to invest; once this is done, people should put together a plan to invest regularly. It is a good idea to on employer-sponsored pension plans as well.

Once the retirement plan is developed, it's important to maintain the plan and stay on track. The key is to keep saving for the future, no matter what. People should be sure to pay money into the retirement plan the same as they would any bill. If workers get into the habit of putting aside investment money at the same time they pay bills, the process is much easier. "You may not even notice the additional one or two or three percent coming out of your check. But that extra amount will go a long way toward securing your golden years" (Max). Once the retirement fund is built up, workers should not be tempted to spend part of it on luxuries, assuming that the money can be replaced down the line. "But be flexible enough to look at your special circumstances and goals. Remember, if you deplete your investments early on -- even if you work part-time and continue investing -- it will be tougher to make up the difference. Best bet: sit down with a financial planner who specializes in retirement distribution analysis" (Dratch). Unless it's a matter of life and death, investment savings shouldn't be touched until retirement; it's crucial to put the money aside and forget it.