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It goes without saying that planning for your retirement is important, you might even say critical – devising a plan that will ensure your retirement income will be sufficient enough to cover your day to day living in the non-working portion of your life deserves an appropriate amount of time and effort. Try and think of it this way – you could end up spending 30 or more years of your life in retirement, which is about as long as most people spend on planning for it.

Due to outside factors that you have no control over, such as inflation, declining employer based pensions and benefits, and lower market returns your retirement is potentially at risk. Combine the unknown, uncontrollable elements like those mentioned with the fact that you are likely going to live longer than prior generations and you can easily see how even the most well laid plans for retirement can be in placed in jeopardy. Preparing successfully for retirement means finding a balance between growth and income, planning accordingly regarding inflation and planning to have enough income should you outlive the averages. You will very likely need more money than you think you will.

Unless you don’t mind the prospect of working part time when you’re in your 70s, you need to plan efficiently and accordingly. The current generation will simply not enjoy the social security and employer pensions that secured our grandparents retirement plans. Pensions have declined rapidly over the past two decades to the point of non-existence for most people; this has shifted the responsibility of retirement from the employer to the employee. Comfortable retirement requires equal parts smart saving and investing *and* planning.

The first major step in smart planning is to determine how much you will actually require.

Studies have indicated that the average person will require between 80 – 90% of their current income in order to maintain their current standard of living. Going by this information, a conservative estimate would be that you will need to plan for an annual income very similar to the one you are making right now. The next step would be to figure out a feasible withdrawal rate. The withdrawal rate is the essentially the percentage of your retirement savings that you will need to withdraw for each year of your retirement. Studies have indicated that future retirees will have their best chance of maintaining their assets if the annual withdrawal rate of their retirement savings is around 6% annually. This information can in turn be used to make some quick calculations – you can get a very quick estimate for your required retirement savings amount by dividing your current annual income by the rate of withdrawal (*based on the above mentioned 6%).

Example:

If your target for annual retirement income is 60,000$/year, then you will be required to save 1,000,000$ based on $60,000 divided by 0.06%. This can be extrapolated easily: 55,000$ would require 916,666$, 50,000$ would require 833,333$, etc.

Now, understand that the formula and calculations shown above are not precise, rather, they are estimates. There are more relevant factors that you would typically need to consider such as your current age, expected retirement age, current earnings, accumulated savings (to date), potential income sources during retirement phase, investment portfolio and associated performance of investments, retirement expenditures/cash outflows, and of course – inflation.

Let’s look a bit closer and examine on a month to month basis – how much you’d need to save each month in order to meet the example above of 1,000,000$ for retirement. Assuming your investment rate of return on your savings is 8% (*which can of course not be guaranteed), then in order to meet the one million dollar mark by age 65, if you began saving at age 40, you’d have to save 1051.50$ per month for 25 years. if you have 30 years to retirement, the monthly savings figure is adjusted to a lower number of 670$/month, if you’ve got 35 years to retirement then the figure is 435.75$/month. The numbers can be adjusted in the other direction just as easily; if you’ve only got 10 years until retirement you’d need to start putting away 5466.99/month. As you can see, the earlier you start, the easier it will be to ensure you’ll reach your intended goal.

Planning your retirement is really a lifelong process. During your earning years your retirement planning is likely to undergo various changes and/or adjustments due to outside factors (such as inflation). These changes are necessary and should be viewed as opportunities to fine tune and readjust your plan in order to maintain efficiency and reach your goals.

The earlier you start planning and plotting your retirement income, the less you will be required to do later when retirement is closer. The key, of course, is to save as much as possible, invest wisely and make adjustments as needed or when more advantageous circumstances are at your disposal.

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If you’ve been planning your retirement, you’ve no doubt come to the realization that your generation’s retirement options and strategies are not the same as that of your parents’ generation. Things have changed, and some of the changes may seem downright drastic in nature.

Financial experts have spoken. And what they’ve said is: each successive generation has and less stability and security in terms of retirement. This is likely due to a number of factors – reduction of social security and health benefits, declining benefits from employers and a depressed economic landscape (the worst economy since the great depression, not to put too fine a point on it). All of these influences have combined to radically reshape the financial landscape, and by association, your retirement plans.

In order to secure your future, old methodology and thinking must work in combination with new strategies that have been born of the changing financial landscape. Below are some of the ways in which your retirement is going to be drastically different from that of your parents’ generation.

Multiple and extended length careers

Gone are the days when your working life would follow one long, straight trajectory straight out of college or university. As difficult as it may be to believe, many workers from past generations only ever had one career or permanent job. Nowadays, it is very realistic for many people to change gears in their career 3 to 5 times through the course of their working years. Job security, it would seem, is not what it once was. Workers need to be flexible, perhaps more so than ever before. Lack of long term security in unison with longer life expectancies means many will extend their careers past the once standard retirement age of 55. According to Ken Dychtwald of the Age Wave consulting firm, “They are going to be opting for a longer work life, both because they want the engagement and the extra years of earnings.”

Employer based participation is decreasing

According to the Bureau of Labor Statistics, in 2010 only 20% of all private industry workers had or had access to a traditional retirement pension that pays life time benefits. The 401k plan has become the standard retirement account offered to most employees by their employer, and many workers are seeking out other means of retirement income such as annuities. Most private sector retirement pensions are insured by the federal government, but 401k plans are not, as such, it is not uncommon for medical benefits included with employer based plans to be reduced over time. This yet another reason that many people of the current generations workforce are looking for options in their retirement planning – not only do you need money for day to day living, but you need to have a plan for the inevitable medical expenses or health related needs you will be faced with at some point.

Stretch your Money as far as you can

It seems almost impossible to attempt to (successfully) plan your finances so that they will last for an unknown number of years, the unknown years being your retirement years. Starting early in life is a good start. Understanding the playing field also helps – you are responsible for planning and executing your retirement strategy. Learn about investing your money, and learn about shifting these investments around to whatever is age appropriate. Earn as much as you can and realize that you are building towards making your money last for the rest of your life. Make a budget and adjust it and re-assess it as much as you need to, but never lose sight of the “big picture” – your retirement years.

Live long and try retirement early

Life expectancies are increasing, in spite of the fact that the planet continues to be polluted and overcrowded. There is a very real possibility that you will live longer than your parents’ generation, the increase in life expectancy compounds some of the scenarios outlined here. It is entirely possible that some people will spend more time in their lives retired than they will working – that could require some extensive, yet flexible, financial planning to accommodate.

See what retirement feels like – take an extended vacation. This is what retirement feels like. If you find yourself getting twitchy and counting the days on the calendar, you may not be ready for retirement. At the very least, you’ll know that you are going to need things to keep your time and mind occupied – two things that will require financing. It’s sort of funny, people will spend inordinate amounts of time planning a three week vacation, yet spend almost no time planning their retirement. Think of your retirement as the longest vacation of your life – an enjoyable, relaxing period of time that you can devote to yourself to do things you like and want to do, all at your own pace. Ensure that your retirement is as enjoyable as it possibly can be by planning for it now.

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Many retirees are experiencing first-hand the difficulty of making ends meet during the current economic downturn. Living on a fixed income isn’t simple under the best of circumstances – and the current economic landscape is even less forgiving for those trying to get by on social security or personal savings. Many seniors still seek to earn income of some type to supplement their retirement so they may continue to travel or otherwise enhance their lifestyle. While there are many ways one could go about growing their income in retirement, there are a few methods that will likely produce healthier results.

One slightly tricky option would be a reverse mortgage. Basically, a reverse mortgage allows the bearer to tap in to their home equity – the amount available for borrowing will be dependent on many factors such as current market value of your home, current interest rates and your health or life expectancy. While there is a definite advantage for those over the age of 62 (the money does not need to be paid back as long as you live in the house), the reverse mortgage will mean that you are responsible for numerous fees associated with the loan, insurance, property taxes and overall maintenance costs. If for any reason you decide you want to move, the balance of the loan will be due right away. So, the reverse mortgage is definitely an attractive option but careful consideration needs to be taken and so does a defined look at your future plans in regards to re-location.

One common sense solution would be to simply reduce your expenses. Whether you want to purse this as a means to essentially increase your income (*money saved is money earned, after all), you should have a very clear understanding of exactly where your money goes from month to month. Keep a detailed record of your expenses, both minor and major. Once you’ve laid out everything it will become much easier to see areas where reductions can be made. Consider getting rid of your vehicles, or selling them off and only keeping the one which is the most economical to operate. Focus on and eliminate routine expenses of the unnecessary variety (daily paper and a cup of coffee at Starbucks, for example). Little things can help too – turning off lights, lowering your thermostat in winter, efficient light bulbs, unplugging your computer at night, etc. – every little bit helps, no matter how insignificant it may seem on its own.

Real estate income is another alternative. Investing in real estate is another great way to stay ahead of inflation. Purchasing a property with the express purpose of using it to generate revenue can be advantageous since rental properties offer some tax benefits to the owner in addition to being a source of ongoing revenue. While this may seem like a much less complicated method of supplementing your retirement finances, there are some major considerations you must factor in to your decision making process; rental properties must be well maintained and there are some legitimate expenses that go along with keeping your property in order. Also, owning a rental property means you’ll be a landlord and if you choose to relinquish those duties (taking care of repairs, any tenant related issues, etc.) to a third party that will be another cost incurred.

One very popular option is to invest in Annuities. An Annuity is a type of financial product that is available from an insurance company which guarantees the bearer to income for life. The amount of annual income paid out from an annuity will depend greatly on your life expectancy, attached interest rates and the price of the annuity itself. You can opt to receive payments for the rest of your life, or for a set number of years. How much you will receive depends on two things – whether you choose a guaranteed payout (known as a fixed annuity) or a payout stream determined by the performance of your annuity’s underlying investments (known as a variable annuity). Either way guarantees an income. Anyone who considers an annuity should first research it thoroughly before deciding whether it’s an appropriate investment. As part of a retirement strategy, an annuity is one of the only things that is guaranteed to provide income and the bonus of this scenario is that all of the factors are determined beforehand by the bearer and a financial planner.

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