For me, a retirement planning layman, there are 10 steps you need to take to complete a reasonably useful retirement plan. Each step builds upon the other until you finally get to a list of actions that give you a better chance of having the type of retirement lifestyle you are hoping for. In this article, I will introduce ten steps to develop a decent plan.
Step #1: Decide what you want retirement to be like. Close your eyes and visualize where you want to be in retirement. What type of home will you live in? What type of car will you drive? Do you see yourself around lots of friends? Will you do extensive traveling or perhaps prefer to stay home and watch movies with your spouse? Will you be active in sports or in your community (church, clubs, etc.)?
Step #2: Estimate how long you will live in retirement. We will need take an educated guess of how long you will live in retirement using a bit of family history and some readily available statistics and studies. This estimate is going to be important to figure out how much money you'll need in your retirement nest-egg and whether you'll need to earn some income during retirement.
Step #3: Calculate how much it will cost you to live in retirement. It's now time to calculate what it will cost you to live the life you've visualized in step #1. What are your costs for housing, food, medical, entertainment, transportation, etc. Once we have these costs we'll need to project them into the future by taking into consideration the effects of inflation.
Step #4: Round up all your debt. In this step, you'll need to list what you owe to others. This includes your mortgage(s), credit cards, college debts (maybe not for you but perhaps for your kids), car loans, medical debt, etc.
Step #5: Round up all your assets. Assets you'll want to list here include your home, investment properties, retirement investments (401k, IRA, etc.), annuities, pensions, stocks & bonds, collectibles (paintings, coins, comic books, etc.), savings (cash, CDs, Treasury Bills, etc.) and other valuables.
Step #6: Inventory Your Insurance. While there are many types of insurance the type we are interested in here are life, medical, disability and long-term care.
Step #7: Determine How Much to Leave Your Heirs. Do you want to leave money to your children, your church or your cats? This step is where we figure out how much this will be.
Step #8: Calculate your financial gap. O.K. we now know how much money you'll need in retirement and how much you'll have available...is there a gap? That is, will you need more than what you have? For most of us, the answer is YES.
Step #9: Re-Calibrate Retirement Expectations. In this step, we will have two scenarios: First, if you have more money than you need to live the life you want in retirement, then congratulations; we should all have your problem. Second, if you have less money than you need, like most of us, then we'll need to go back and review step #1 to see what modifications can be made to close the gap.
Step #10: Create Retirement Plan. Here's my definition of a retirement plan: A set of instructions on how to set aside money, invest that money and then spend that money in order to live a desired lifestyle during retirement. This is what we'll be creating in this final step of our planning process.
If this sounds like a reasonable approach to create a retirement plan then look for my future articles where I'll go into greater detail on each step.
About this Author
Steve is always on the lookout to help folks get to retirement in style. If you have a tired old CD or a rollercoaster 401k then visit http://www.bestratesannuities.com and get high returns that are safe and can be tailored to your needs.
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