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A Five-Step Action Plan for Retirement Planning as published in InsideNova.com

As I pointed out in my last piece, most of us tend to spend more time planning for a one-week vacation than for our entire retirement. This, despite the ongoing analyses informing us that most American workers are falling short on their retirement savings.

Why is that? For one, it’s hard to know how much you should be saving. Plus, a part of you may not want to know. What if you don’t like the answer? So, you put off planning for another day. Then another. Until … you approach retirement with no plan at all.

Fortunately, I find that most families who do plan for their retirement goals can achieve them. Once we’ve assessed their circumstances, we can usually find a tolerable way forward, whether it’s by saving more, working longer, downsizing the grand plans, or all of the above. Plus, I’ve found judicious planning can relieve the stress of not knowing where the heck you stand.

The sooner you get your retirement action plan in place, the fewer lifestyle compromises you’ll likely have to make. Here’s how to get going:

  1. Identify your goals. What does your retirement look like and when does it start?
  2. Identify expected retirement expenses. Be realistic. Track your current spending for a year, to capture ongoing as well as annual spending (like holiday gifts). Throw in extra for that new car every several years, higher medical costs as you age, etc.
  3. Identify all expected income such as Social Security and, if you’re lucky, employer pensions.
  4. Subtract your annual expected income from your annual expected expenses. Multiply the resulting “gap” by your guestimate of years in retirement. This total is a rough estimate of your retirement savings goal.
  5. To determine the necessary annual savings amount, use the online calculator at http://apps.finra.org/calcs/1/retirement. The calculator will factor in inflation, taxes, and investment returns.

Is your gap too wide? There usually are several sensible ways to shrink it - such as thinking through when to begin taking your Social Security benefits. I'll cover that one next week.

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