Not too long ago, many people believed that if they lived to retirement at all, it would only be for a few years. With improvements in technology and health sciences, life expectancy has increased dramatically. Unless you plan to win the lottery, be disciplined on personal savings and investments—because it could be a long phase of your life. Women: you are going to live longer, actuarially, than men, so be prepared.

How do you define retirement? Completely leaving the job market, starting a new career, making a business out of a hobby, or traveling the world? Whatever your definition, you will need money. How much money? That is the question that needs to be answered. The term "retired" implies that you will become a couch potato, but I believe that's an untrue picture. Think of retirement as a transition into a new phase of life, a passage to the next journey or adventure. By the way, how long do you plan to live in retirement? And, in what kind of health? Don't you wish that you knew all of these answers? Ask yourself what will have changed substantially at the time you leave your primary occupation. These factors are critical to dealing with the unknown.

TAKING THE TRIP—READING THE MAP

Would you even consider leaving on a driving trip across the country without having consulted the maps, or called for your "trip tik?" Hopefully you answered a resounding NO, because otherwise, there is cause for concern. Unfortunately, many people spend more time planning those summer vacations than they do planning for retirement. You may only spend two weeks on vacation, but it is conceivable that you may spend thirty years in retirement. Just because you fail to plan does not mean that retirement years will not come. They will come and you may find yourself working throughout, instead of taking those trips you dreamed of. Several sources are available to help design your "trip tik." Your CPA or a financial planner, with the proper credentials, is a good place to start.

THE "IOU" THAT YOU OWE YOU

You owe yourself a comfortable retirement, one that maintains the standard of living to which you have become accustomed, with some extras thrown in for good measure. With that thought in mind, the first item of business is to take a picture of where you are today. What resources do you currently have in your employer-sponsored retirement plan (if you have one). What resources do you have in personal IRA's and what resources do you have "stashed" away in Mutual Funds, etc.? Every year, you should take a complete inventory of all assets and liabilities. If you have an employer sponsored 401-K plan, what is the year-end balance? If you have personal IRA's, what are those balances? Don't forget, the equity in your home will increase each year, unless you are ravaging it with equity loans (on which I urge extreme caution). Do you have savings accounts, CD's, stocks and/or bonds? Each year the valuation of all of these assets needs to be totaled. From this total, the sum of the debts must be subtracted. Debts may include your home mortgage balance, equity line of credit, car loan balance, credit card balances, and any other current bills. Take heed of an often misunderstood fact regarding debt and balances owing — they are not forgiven when you die.

So... armed with a definition of "comfortable retirement" and a snapshot of your current financial situation, the next step is figure the numbers. Read on...

HOW MUCH DO I NEED?

That is the "64,000" dollar question. The question is on everyone's mind, but rarely on anyone's "to do" list. The rule of thumb for figuring needed income at retirement is that you will need 70% of pre-retirement income. However, be aware that many financial planners have increased that figure, primarily due to the rising cost of health care among seniors and increased longevity. With that in mind, figure out what you will need during retirement, keeping in mind our discussion earlier in this seminar...another career, social security, etc. My recommendation is that you NOT count income from social security as a major player, but let that be your "filler" fund. Several reasons exist for this recommendation. One is that income from your second career may offset some of the social security, so the picture would not be true. Another is, if you are very young, social security may not be available to the extent that it is today.

With the figure that you have determined, factor in the number of years until you would like to retire from your primary occupation. For example, if you need $700,000 in your nest egg at the time you retire, you will need to save approximately $28,372 per year, earning six percent interest per year, if retirement is in 15 years. If your risk tolerance is greater, then your returns could be greater by utilizing more aggressive money funds. If the return rate were 12 percent, the earnings would be approximately doubled, or the amount to save each year would be approximately half. (This is the topic of another article.)

LET YOUR MONEY DO THE WORK, NOT YOU

You may be familiar with the formula that speaks to the effects of compounding interest. If you take the average interest rate that you expect to earn on a specific sum of money over a period of time, and divide that figure into 72, you determine how long it will take for that sum of money to double. So, if you deposit $10,000 into a Mutual Fund and earn an average of 12% per year, you can expect approximately $20,000 to be in that account at the end of six years.

This is an illustration of letting your money work for you, and the earlier you get started, the closer you will be to a more satisfying retirement. Do remember that the amount you start with is not so critical as the fact that you get started. SO, WHAT ARE YOU WAITING FOR???

TEN REASONS WHY PEOPLE FAIL FINANCIALLY:

1. Procrastination
2. Lack of goals
3. Not knowing how to establish goals
4. Insufficient knowledge of the tax laws
5. Improper insurance plans
6. Debt accumulation
7. Lack of understanding about inflation
8. Fear
9. Negligence in monitoring financial portfolios
10. Poor attitude

Identify your weak points and start to work now. You will be one of the financial WINNERS

About the Author

Ruth R. Petty, CLU, ChFC, spent her first 17 years in North Carolina. After graduating from Wheaton College in Illinois, Ruth left the south and did not return until 1987. Now a resident of Boston, she has lived on both coasts of the U.S. and in Germany. Ruth entered the financial planning and advisory arena quite by accident -- responding to a blind ad in a newspaper. Finding it very enjoyable, she dug into school and obtained her second and third masters degrees — in financial services and management. Her first masters was in sociology.