Retirement Planning. Fail to Plan and Plan to Fail

All Americans know that retirement planning is vitally important. We know that pensions are a thing of the past, and that Social Security is likely to be "reformed" so that it does not provide the same benefits it once did.

We know that we must take the planning bull by the horns ourselves. And yet, few Americans take full advantage of employer-sponsored retirement planning services like 401k's. For workers without employer-sponsored retirement vehicles, retirement planning and saving is even lower. Sadly, those of us who fail to plan should plan to fail.

Retirement Planning - How Much Will You Need in Retirement?

Step One in planning is determining how much you will need. Will your mortgage be paid off? Will you have other outstanding debts? If you will own your home, in full, and be completely debt-free upon retirement, experts say you will need 70 percent of your current income to retire comfortably.

However, you must take inflation into account when planning, or you could wind up like many distressed widows and widowers who thought that their pensions would be enough, only to find out that rising prices quickly deflated their buying power.

When retirement planning, anticipate 3 percent inflation per year.

If you earn $60,000 per year, planning experts say you will need an inflation-adjusted $42,000 per year in retirement. If you were retiring in ten years, this would mean $54,800 per year. If you're not retiring for 25 years, then plan on needing more than $85,000 per year.

A grisly aspect of retirement planning is estimating how long you will live. If your planning exercises tell you that you will need $85,000 per year, and you plan to retire at 65 and live to 90, this would mean you would need a staggering $2,125,000!

Retirement Planning Products and Services

Step Two in planning is determining the products and services that best fit your retirement planning needs. You may have one set of products that you use during the "accumulation phase" of planning the saving and investing during your working years; and another during your actual retirement years, where the emphasis will be on wisely utilizing your nest egg.

For example, you may decide to save $4,000 pear year in a target-retirement mutual fund sheltered in your Roth IRA. This may be a great accumulation phase strategy, but once you retire, you will need a new strategy that lets you preserve as much principal as possible.

Those of us wise enough to begin our retirement planning very early in life have a great advantage. Guess how much someone with the foresight to begin their planning at age 22, who saved $4,000 per year in a mutual fund that returned 11 percent per year, would have in their retirement account at age 67?

They would have saved $184,000 over the course of 46 years. Would that money have doubled to $368,000? How about tripled to $552,000? Would they be happy if it increased by ten-fold to $1.84 million? If so, then they would be really happy with the actual compound return of 11 percent, as it would amount to an amazing $4.8 million!

Even adjusted for 46 years of inflation, this would be more than $1.27 million, which would allow the retiree to live off the 5 percent interest on ultra-safe U.S. government bonds (inflation-adjusted $63,500 per year) and leave an estate of $4.8 million ($1.27 million, inflation-adjusted) to his or her family.

But there are planning options for those of us who weren't so wise in our youths. A reverse mortgage, for example, allows you to sell your home to a bank, while you continue to occupy it. They pay you a monthly house payment, instead of the other way around, but they don't take possession of your house until you pass away.

Various life insurance and annuity products can also be helpful in retirement planning. There is a whole world of options out there, you just have to know where to look, and this web site is a great place to start.