How Do You Create a Retirement Plan?

Planning ahead helps put you on the right path to retirement.

Everyone knows that they need to plan for their retirement, but it can be hard to know where to start. Failure to plan can have dire consequences, however, as your savings and investments have a big impact on your quality of life in retirement. Most people find that their retirement goals – and consequently their financial needs – shift over time, evolving and refining as they get closer to retirement age. A carefully considered plan evolves with your goals, ensuring you meet all your retirement needs.

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Instructions

- 1
  
  Clarify your goals and concerns. It's impossible to plan for an unknown destination, so take some time to think through your ideal retirement. Consider things like where you'd like to live and what you'd like to do. Think about when you'd like to retire, and if you plan to work part-time or even try your hand at a second (or third) career. Pay particular attention to anything that makes you nervous – that flutter in your stomach may indicate an area that needs further research or an area of life that needs special attention to ensure you'll meet your goals.
- 2
  
  Take stock of your current financial situation. While you may be just beginning the planning process, that doesn't mean you're starting from scratch. Look up and collect information on any checking and savings account balances, 401(k) and IRA accounts, stock portfolios or insurance policies. List any assets like a home or business and determine their current value. You'll also need to look at any debt you have: mortgages, credit cards, educational loans and the like are negative values on your net worth, and need to figure into your planning process. It's also helpful to track your current spending habits for a few months – these serve as a good barometer for your spending in retirement. Note that many banks offer spending breakdowns based on debit card usage on their online websites, so you may be able to get a start on your analysis with this type of report.
- 3
  
  Use online calculators to estimate your savings growth and retirement income. If you currently have a 401(k) plan or IRA, your plan provider has many of these tools, and they can be customized to your account. Alternatively, use one of the many planners available through leading financial websites like SmartMoney.com or Morningstar.com.
- 4
  
  Analyze the gaps and your savings options. It's likely that your estimated income and your retirement plans won't match perfectly. Review your estimates and plans to see where you have gaps, and see if there's anything you can adjust. Take a look at the various retirement savings options available – 401(k), IRA, brokerage accounts, for example – to ensure you're taking full advantage of all your options. This may not always be obvious, which is why this is a good point to move to Step 5.
- 5
  
  Consult a professional. Once you've done the initial legwork, a session with a professional financial planner helps clarify both your plans and your options. This is especially important if you don't think you'll meet your retirement goals, or if your financial situation may be complicated by a business sale, a child with special needs or another significant care item. Look for a fee-based, certified financial professional who specializes in retirement planning to make sure that you get unbiased advice from a trained professional.
- 6
  
  Create a plan. This includes how much you'll save each year and in what vehicles. It should also include an investment plan that outlines how you'll grow your savings, and some estimations of when you'll retire and how you'll withdraw and use your money.
- 7
  
  Define your end-of-life plans and documents. While most people like to avoid thinking about the end of their retirement, it's an unfortunate part of the retirement planning process. This is a good time to make sure your end-of-life plans are legally documented. This includes things like medical care and a living will as well as estate planning and insurance.
- 8
  
  Review your plans regularly – an annual review is right for most people. Go over both your plans and your investment strategy, making any adjustments to ensure you reach your goals.