Lay out specific plans for retirement

You may have an idealistic vision of retirement, doing all of the things that you never seem to have time to do now: traveling, fishing, gardening or spoiling grandchildren.

But how do you pursue that vision? Social Security may be around when you retire, but the benefit that you get may not provide enough income for your retirement years. To make matters worse, few employers today offer a traditional company pension plan that guarantees you a specific income at retirement. On top of that, people are living longer and must find ways to fund those additional years of retirement.

Such eye-opening facts mean that today, sound retirement planning is critical.

The good news is retirement planning is easier than it used to be, thanks to the many tools and resources available.

It’s common to discuss desired annual retirement income as a percentage of your current income; typically, it falls within the 60 percent to 90 percent range. The appeal of this approach lies in its simplicity.

The problem, however, is that it doesn’t account for your specific situation. Here are some basic steps to determine your specific needs:

Use your current expenses as a starting point. But note that your expenses may change dramatically by the time you retire. If you’re nearing retirement, the gap between your current expenses and your retirement expenses may be small. If retirement is many years away, the gap may be significant, and projecting your future expenses may be more difficult.

Remember to take inflation into account. The average annual rate of inflation over the past 20 years has been approximately 2.4 percent. In addition, keep in mind that your annual expenses may fluctuate throughout retirement. For instance, if you own a home and are paying a mortgage, your expenses will drop if the mortgage is paid off by the time you retire. Other expenses, such as health-related expenses, may increase in your later retirement years. A realistic estimate of your expenses will tell you about how much yearly income you’ll need to live comfortably.

Take stock of your estimated future assets and income. These may come from Social Security, a retirement plan at work, a part-time job and other sources. If estimates show that your future assets and income will fall short of what you need, the rest will have to come from additional personal retirement savings. But exactly how much is enough? The following questions may help you find the answer:

•  At what age do you plan to retire? The younger you retire, the longer your retirement will be, and the more money you’ll need.

•  What is your life expectancy? The longer you live, the more years of retirement you’ll have to fund.

•  What rate of growth can you expect from your savings now and during retirement? The slower the growth, the more you will have to save.

•  While retirement is normally a long-term goal, starting early should be your approach.

Life is a journey; plan for it.