Workplace

Whether you are a few days or many years away from retirement, establishing a detailed retirement plan is necessary to ensure your retirement is financially secure.

Although you likely have spent much of your career making quick decisions, taking calculated business risks and making them pay off, failing to take time to establish a retirement plan could be devastating for you and your family.

The current environment

A larger percentage of the U.S. population is living until retirement age (commonly 65) compared with previous generations, and a larger percentage is living longer during retirement, as well. According to the Internal Revenue Service's Table 90CM, which lists recent life expectancy data, a 65-year-old member of a married couple is expected to live an additional 23.3 years, or almost to age 89. This is longer than previous generations' life expectancies by about five years and can place significant financial burdens on an already tight retirement budget.

Some factors you need to be aware of to successfully plan for wealth accumulation and retirement include the following:

• The major financial requirements you'll face
• Inflation's effect on retirement and how it is a cost you may not anticipate
• Financial well-being's effect on quality of life
• Planning alternatives that are available for developing a financial self-sufficiency plan—the days of a fixed pension and guaranteed Social Security benefits are gone

Anyone who is complacent about saving for retirement should know the financial problems retirees can face. Consider the following information from Vermont Statutes Online 2007:

• Studies indicate 75 percent of elderly couples cannot afford luxury items because the routine costs of living absorb all their income.
• Even in generous employer-sponsored retirement plans, employers typically replace only about half of their employees' salaries.
• The combination of an employer-sponsored retirement plan and Social Security almost certainly will not provide adequate funds for maintaining a pre-retirement standard of living during retirement.
• Many people have to face deteriorating health during retirement. Poor health increases medical expenses and the purchase of services retirees were once able to perform themselves (for example, home maintenance).
• Ongoing inflation during retirement years will erode the purchasing power of a retiree's income.

Making preparations

So what can you do to prepare?

First, take a financial inventory of your current situation. Many online calculators are available that can help you determine what your financial situation will be when you retire.

Next, it is important you start saving and planning now. Even though you may feel like you already have waited too long, starting now may mean the difference between a zero balance and $10,000 in your retirement plan account, which could pay for a medical procedure.

Also, consider delaying your retirement date or pursuing part-time employment during your healthy retirement years.

In addition, review your distribution options and how you live on the assets you have accumulated. With a professional's help, determining which assets to use for income could be as important—if not more important—than the assets themselves. An individual retirement account (IRA) distribution comes at the expense of paying taxes on the money received. As an example, in a 25 percent tax bracket, you would have to make about $26,000 to net $20,000 in spendable income. If you were to use a non-IRA asset like a CD, you would only need to withdraw the $20,000, saving taxes that could be used later in life.

A long process

Planning for your retirement is not a task that can be completed in an afternoon. Much like planning a vacation, expert help can make this job less stressful and easier.

Brian Heckert is president of PENFlex Services Inc., a business consulting firm with offices in Nashville, Ill., and Peoria, Ill.

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