Identifying income sources, estimating expenses, carrying out a savings program, and investment management are all part of retirement planning. Retirement planning is more than analysis of future cash flow to ensure there is enough income to cover expenses. Non-financial aspects include how you plan to spend your time, where you will live and various other lifestyle choices.

Throughout a person’s work life, he or she experiences different stages. At the beginning of a career it is simply a matter of developing the habit of putting money aside for retirement. By the time the middle years are reached, it is about setting aside enough money to make retirement possible. This is the time when a concrete retirement plan needs to be set and steps taken to ensure goals can be achieved. In the few years leading to retirement, emphasis focuses are non-financial details.

Do Not Depend on the Government or Your Employer

The United States population is aging, and there are increasingly less working-age individuals contributing to social security. One study made note of the fact that in 1940 there were 35.3 million workers contributing to the social security system and 222,000 collecting benefits, translating to a ratio of one out of every 159 recipients. Approximately ten years ago there were around 150 million in the work force and it was approaching 50 million who were recipients, which is just about 1/3. As more people reach retirement and live longer the system will be strained to the point of possible collapse.

Company pensions are in no way immune from shortcomings. Even very large, seemingly secure, high-profile business can go bankrupt. For example, just over a decade ago no one could have imagined what would happen to the now defunct Enron. Your employer-sponsored stock holdings could be wiped out without a moment’s notice.

Defined-benefit pension plans, in which management of the retirement plan is in the hands of the employer, and benefits are based on a formula that takes into consideration salary history and length of employment, are becoming a thing of the past. Although defined-benefit plans are meant to guarantee employees a secure retirement income, they are not one hundred percent certain.

Even if the social security does not collapse, and there is a good chance it will not, it was never meant to be the only source of retirement income. If you are relying on social security to carry you through your retirement year, they will be bleak. You will be lucky to eke out an existence.

Leaving a Legacy

Without a well thought out retirement plan you may be forced to use assets that you would have preferred to leave to your children and grandchildren. What is even worse than needing to spend your financial legacy is running out of funds, and depending on your children to support you. If a financial legacy is important, the best way to secure it is to have a secure and sufficient retirement fund.

Life Holds No Guarantees

No one owns an effective crystal ball, and life is full of uncertainties. In your post retirement years, just as in the years before retirement, you will experience unexpected financial bumps. A secure nest egg will go a long way to smoothing them out.

Building Your Nest Egg

In the United States, the two most common ways to save for retirement are the 401(k)s and individual retirement account (IRAs). When a company decides to offer its employees a 401(k) plan, it chooses from several options. None of the plans are mandatory; employees have the right to refuse participation. However, if your employer offers a 401(k) plan, take a good look at it because generally participation is worth your while.

The rules regarding IRAs vary depending on factors such as income level, participation in an employers pension plan, and the type of IRA. Traditional IRAs give you the opportunity to pay your income tax after retiring, thereby paying a lesser rate when your income diminishes. On the other hand, investing in a Roth IRA means you pay the taxes upfront and interest gained in the account is tax free.

For most people, retirement planning seems like a daunting task. A financial planner has the knowledge and experience to objectively look at where you are today and help you plan where you want to be in the future. It is not just about your money, it is also about your life.

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