But short of the worst case scenario of an early demise, everyone is going to get old and its far better to do so with a plan then to let it sneak up on you.
This is something you do not want to screw up. Is it possible to screw up retirement planning? Of course it is. If you speak to senior citizens who did not start planning in advance and got to their senior years with nothing to fall back on and no funds to use so they can step out of the working world and enjoy a more leisurely retirement lifestyle, that is an example of people who screwed up their retirement planning. So it is good to know the common mistakes people make so you can avoid them.
Probably the biggest mistake that you can make in your retirement planning is to wait to start it until you are pretty close to retirement. If you want to retire at 60 and you do not start getting ready until you are 55, you will not have nearly as well prepared a retirement package as if you had started when you was 25 or 35. By starting early, you can set back a small amount each month and put it into an IRA, your employer 401k or some other retirement vehicle. Then just let that money continue to accumulate and grow and before you know it you are sitting on top of a pretty substantial nest egg.
Speaking of sitting on top of a nest egg, the second big mistake people make is not leaving that nest egg alone. When that retirement investment fund starts to get big, it is really easy to look at it as a way to get you out of credit card debt trouble or to borrow against for some new plan or possession you want. Above all, resist this temptation. If you lose that retirement fund due to foolish use of the funds in your middle age years, you are back to square one with nothing to show for your years of hard work developing that retirement nest egg.
The plan of setting up withholding from your checkbook or a direct deposit to your retirement account of retirement savings allows you to go about your busy life knowing that your retirement planning is underway. This is step one but its not a good idea to never go back and review your retirement plan and see if how you are going about getting ready for retirement well in advance. Make it a regular ritual to sit down and review what is going on with your investment funds. Look at the way your investments have been performing and if you are not getting a good return on those money, make some changes. Remember, just because your retirement funds are being managed by the company you work for does not mean the money belongs to them. It is yours so be responsible and manage it.
Starting early and staying proactive about your retirement is your best approach to retirement planning and one that will result in a much bigger retirement fund for you to start your golden years with. And by taking good care of your retirement before you need it, you are guaranteeing that it will take good care of you when its time to depend on that fund for a happy and prosperous retirement lifestyle.

Do I have enough money to retire? That is a question that 77 million baby boomers are asking themselves. Many do not retire simply because they don’t know the answer. And they are right to be fearful. Studies have shown that, based on their current savings, 60% of Americans will not be able to sustain their present lifestyle in retirement!
The most common advice you will hear from the financial community is that you will need 80% of your pre-retirement annual salary. Frankly, that is poor advice, and I think you will agree once you have read this article.
No one can answer this question for you, not even your financial advisor, because the answer involves more than just money. The process for finding the answer is simple, but doing the work to get the answer is more difficult. Knowing HOW to do it is the first step.
Basically, you need to answer four questions: (1) What kind of Life Do I Want, (2) What Will It Cost, (3) Where Will the Money Come From, and (3) How Much Will I need?
What Kind of Life Do I Want in Retirement?
The first question you need to ask yourself is “what do I want my life to be like in retirement?” But before you answer your financial advisor’s questions about where you will be living, who will you be with, will you be traveling, etc., answer this question first: “What kind of life will make me happy, satisfied and fulfilled?”
To find the answer, look to your past. Think about what you were doing when you were in what is called a state of “flow,” when you were functioning at a very high level, using all your talents, and so involved that you lost all sense of time. Where were you? What were you doing? Who were you with? What was the environment? What were the circumstances?
By deconstructing these memories, you will be able to learn a lot about yourself and what psychologists call your “motivational needs.” By thinking of your “flow” experiences, you are analyzing your personality in the context of doing something which has a purpose, and we all need purpose in our lives, particularly in retirement.
Many people think they were happiest when they were on vacation, say those recent two weeks in Florida or that trip to Hawaii. I call this the “Carnival Cruise” retirement myth, because vacations are great only because they are a counterbalance to a set routine. Treating your life like a perpetual vacation is not going to keep you happy in the long term. Doing what you love will. So you first need to think about your retirement life in this context and then think about how to pay for it. Not the other way around.
What Will My Retirement Cost?
Now you are ready to do some projections of the costs of your retirement. Begin by analyzing where you are currently spending your money, pre-retirement, on a monthly and annual basis. Look at your checkbooks, your credit card statements, and how much cash you withdraw from the ATM each month. Put these in the appropriate categories (housing/property maintenance expenses, food, health care, personal living expenses, unreimbursed professional expenses, travel and entertainment, etc.).
Now, given the life you want to lead in retirement, look at these numbers again and anticipate how they are going to change. Your commuting costs and professional expenses may go down, but your travel and entertainment expenses will probably increase, and don’t forget that health care expenses tend to increase as you get older, so take this into account based on the type of coverage and deductibles you have. Also travel is more expensive these days, particularly foreign travel due to the weak dollar.
Don’t forget to estimate your tax liabilities, including taxes owed on any withdrawals from tax-sheltered accounts. As a result of this analysis, you will be able to determine the projected annual income you will need to support your “new life” in retirement.
Where Will the Money Come From?
Your next step is to determine where your retirement paycheck will come from. Traditional sources are a pension from your work (if any), social security, any part-time work you plan to do, and your savings (both tax-sheltered, including your 401k, IRAs, SEPs, etc. and after-tax savings and investments). Don’t include home equity unless you plan on selling your home and downsizing, thereby releasing money for your personal use.
From your previous analysis, you have projected how much annual income you will need. Now add up the recurring payments from pensions, social security, and any others (i.e. investment property you plan to keep in retirement which has a positive cash flow). To this figure add a 4% withdrawal from your total combined tax-sheltered and after tax savings. It has been proven that a 4% annual withdrawal rate, adjusted annually for inflation, will insure that your money will last for the rest of your life.
How Much (More) Will I Need?
So what if it all isn’t adding up? Now you can see if there is a “gap” between what you have and what you project you will need. How can you fill that gap?
Let’s take a simple example. Let’s say you find you need an additional $1500/month, or $18,000 a year. Divide $18,000 by .04 which equals $450,000. That is how much you will need to add to your savings to generate the additional income you require.
But what if that is not realistic? Then you need to go back to your “new life” expenditure calculations and make some adjustments. Remember what you learned about yourself from your “flow” memories and use this information to prioritize what is really important to you. Reduce or eliminate other less important things.
Perhaps you still want to travel, but you might consider reducing the number of trips. Continuing to work for a few more years, or working part-time in early retirement can make an enormous difference in sustaining a higher lifestyle. Research has shown that working 30% in the first five years of retirement will result in a portfolio 40% larger than it would otherwise have been at the end of that period, and this larger portfolio will sustain a higher lifestyle afterwards since there will be more money covering fewer years.
The financial advice I have given you is very conservative, and will ensure that you never go broke in your retirement, providing you continue to spend within the annual budget you have established for yourself to support the life you want to lead. There are circumstances where you could exceed 4% (if you have a shorter life expectancy due to some illness, if you anticipate a significant inheritance in the future, etc.) but 4% is a very safe number.
Better safe than sorry. And better happy, satisfied, fulfilled and enjoying every day of a purpose-driven retirement than sad, depressed, wandering aimlessly through an eternal “vacation” and worried that you will run out of money before you run out of life.

Do you know how much money you will need at retirement? Do you know if you will even have that much money? The best method to know for certain is for you to start putting together your retirement worksheet today. Before you begin your worksheet, however, you will need to answer the following 3 vital questions:
How much do you want to make a year, in today’s dollars, when you retire? Or, to put it another way, if you were to retire right now, what yearly salary would you require in order to keep you living in the fashion to which you have become accustomed. The majority of worksheets and calculators will have built into them projected appraisals for inflation and will be able to use this figure to calculate roughly the amount of annual income you will need at retirement.
How many years are there before you retire? This is critical because it is the number of years you have remaining in which to add funds to your financial portfolio. The spreadsheet will take the value of your current portfolio and add to it any expected contributions up to the retirement date. The calculation will show how much you can expect to have at retirement. If this amount is less than what you require, you will either have to add more money to your portfolio, change your investment strategy, or lower you expected standards of living at retirement.
What is the sum of all your sources of expected retirement income? This includes your expected Social Security income as well as any of the following investment plans – 401k, 403b, 457, Keoghs, SEP, IRA, and pension plans. It’s important to get as concrete figures as you can and put them on paper. This helps to avoid the rose colored glasses scenario where you think you have more money than you actually do. A major cause of people getting to retirement and being shocked that they don’t have enough money to live at their current lifestyle level is their failure at an earlier age to take a hard look at their financial situation when they had plenty of time to do something about it.
How many years will your retirement funds be expected to last? This is a sensitive question as it gets into life expectancy and mortality issues. Once you begin to collect Social Security, your income from it will be relatively constant. But Social Security will most likely cover less than half of your desired income. And in many cases, it will cover much less. This means that your remaining investments have to supply the rest of your income. In the best of circumstances, you will be able to live off of a combination of the interest and dividends from your investments and not have to touch the principal. If, however, you are forced to start drawing against the principal, your annual income from it will continually decrease until gone. Knowing how many years your retirement funds will be necessary will help you make the decision as to whether you should start to draw the principal down or accept a lowered standard of living.
How is your health? For many retired people, their medical bills are their biggest out of pocket expense when they retire. Even with Medicare, you may have deductibles to pay for. We can’t look into the future and say for certain what our health will be at retirement. But if you already are taking medical treatments for a disease such as high blood pressure, diabetes, cancer, and so on – you can be almost certain that those bills will increase significantly as you reach retirement age. Many people when making their retirement plan, forget planning for future medical bills. But now, before your retirement, is the best time to do this.