Planning for Retirement

We’d have our work cut out for us if planning for retirement was simply a matter of stashing money in a piggy bank.

The truth is that the retirement-planning process is a lot more complicated. You’ll need a savings plan for where and when to stash your money, and a plan for how to invest it -- and there are several types of retirement accounts to choose from. You’ll need a plan for health care expenses, as well as a plan for different types of insurance (such as long-term health care and life insurance). And yes, you’ll need a plan to save enough, pay your taxes and have fun on a fixed income: will you play golf, enroll in art history classes, or take care of the grandchildren? So many plans, so little time.

So how will you become a diligent retirement planner? First get familiar with some of the key concepts of retirement planning:

• Saving methods: You can make one-time annual contributions to retirement funds, or make them in smaller deposits throughout the year; directing funds straight from your paycheck is one possibility. There is a maximum amount you are allowed to contribute annually, although most people don’t meet it (but you should!).

• Savings vehicles: Where you put your money is just as important as how much you put there. Know your 401(k) from your IRA from your Roth; these retirement accounts have different tax consequences and rules and penalties for withdrawing money.

• Investment strategy: You’ll always be balancing your need to protect assets for retirement with your desire to grow them, so your portfolio will likely be a mix of conservative and riskier investments; the mix will vary throughout the retirement planning process.

• Social Security benefits: You’ll become eligible for these benefits in your 60s, but they are not usually enough to cover the full expenses of retirement.

• The cost of things: Your tax, medical, food, clothing and housing bills will be different in retirement than they are in the prime of your career. To get ready for living on a fixed income, understand what your expenses will be.

• Timing. The earlier you begin saving, the longer your money will have to grow. That’s the cardinal rule of planning: start early.

• Help is available. Employers and banks offer retirement planning assistance. Financial planners are also in the business of retirement planning: find out what their pay structure is. You should be aware when planners accept commissions directly from the investment vehicles they place you in, so you can review these decisions.

• The present affects the future. The decisions we make now -- what kinds of jobs we take, where we choose to live or buy a second home, and whether we help our children and parents –- should be considered part of how we plan for retirement.

A diligent retirement planner may put herself on a fixed income a few years before she retires, to get used to it, or live dramatically below their means long before retirement, to grow their savings. It’s up to you how prepared for retirement you will be. But there’s an old saying that sums up why planning is the way to go: “If you fail to plan, you plan to fail.”