Overview of Retirement Planning

If you consider yourself financially successful, you may think that, with your personal savings and holdings, your company retirement benefits, and Social Security, you will have no problem retiring comfortably. Hopefully, your beliefs are correct. You can't know for sure, though, until you sit down and actually estimate what your retirement income and expenses will be. This is definitely one of the many cases where your ignorance will not lead to bliss.

Before diving into the major considerations, a quick look at the common mistakes people make in retirement planning may help put things into perspective. Hopefully, you will also become motivated enough to do some serious planning.

Being late is never better. People often start planning for retirement later in life. Although it is never too late to begin your retirement planning, the number of options available to you decreases as you get older. The later you begin, the less chance you have for your savings to grow or for you to recover from bad economic conditions or life events. You may get tired of seeing this repeated over and over again, but there is no such thing as planning or saving for retirement too early.

Company retirement benefits alone are frequently not enough. People commonly misunderstand how company retirement benefits work and what they offer. This occurs even with small business owners, who should in theory know more since they are the employers providing the benefits. Unless you understand and keep track of your benefits, you won't be able to make the required ongoing adjustments to your retirement plan.

Social Security is not a safety net. Despite what some people may think, the Social Security system has never been and never will be a safety net for those who retire with few or no assets or income. At most, it provides a cushion to partially soften the blow to your finances when you leave your employment to retire. The way things are developing, that cushion is getting progressively thinner and there are no guarantees that the Social Security will be funded to cover the cost of those retiring in the next decade. So, at most, you should only consider Social Security as a small part of your overall retirement plan.

Medicare is not enough to cover health care costs. For most older individuals, Medicare will be the main source for their health insurance coverage. Unfortunately, Medicare costs increase regularly and any shortfall in coverage will have to come from somewhere. "Somewhere" is directly out of your pocket or indirectly through the cost of supplemental health insurance that you purchase. So, don't forget this important consideration.

It does not cost less to live during retirement. At first glance, it may seem that you will need less money to live on during retirement. This may be true for some, but it is not the general rule. In addition to increased health care costs, leisure and entertainment costs tend to increase sharply shortly after retirement. Also, families who started having children late in life may find their resources strained by the burden of funding college tuition. Therefore, take a realistic look at what your expected retirement expenses will be and include them in your planning projections.

After reading the above, you should be more motivated than ever to learn all you can about the retirement planning process. If you are not fully convinced yet that you need to plan for retirement, invest a few more minutes of your time in reading the following additional information. If you are already convinced of the importance of retirement planning, read on to learn more.

• Importance of Retirement Planning: Find out more details about why it is absolutely essential for you to become committed to creating and sticking to a retirement plan.
• Life Cycle Approach to Planning: Retirement planning is a lifelong process and professional retirement planners often explain the process by using a life cycle model. We provide you with our own version of this model. Use it to figure out where you are in the process and what challenges await you.
• Where to Start: Had enough theoretical discussion? Convinced that retirement planning is as important as eating and sleeping? Consult this section if you are ready to dive into the nuts and bolts of crunching numbers to determine what you have and what you'll need for retirement. Also learn how to make up any shortfall between the two.