Retirement Planning

If your daydreams of settling into a comfortable retirement are giving you nightmares, it may be time to ask yourself an important question: Are you really financially ready to retire?

Three out of 10 Americans have not saved for retirement, which Social Security defines as age 65 ... If you still have a way to go before retirement, now is the time to put your financial retirement plan into action.

Prepare Two Different Budgets
How much money will you need in order to live comfortably after retirement? In order to make that assessment, the first budget you create should be your current living expenses. Then you will need to formulate an estimated retirement budget. Assume that you'll need at least 70 to 80 percent of your current income to keep the same standard of living during your retirement years.

There is a variety of budgeting software available to help you better estimate your cost-of-living expenses. "In today's society, for retirement, you have to know when your money is going to run out," says Percy E. Bolton, a certified financial planner in California. "If your money runs out before you die, you have to find a way to deal with that."

Get Out of Debt Now
Reducing or eliminating debt is a good move when planning for retirement. If you have any significant debt that is outstanding, such as a car payment or home-repair issues, get those paid off before you string up the hammock on the beach. Also, retirement may not be the best time to go out and buy that Hummer you've been eyeing.

Evaluate Your 401(k) or Pension Plan
Pension plans (funded solely by an employer) are becoming a thing of the past, according to the American Benefits Council, which reported that, compared to 1994, pension plans fell by 50 percent in 2004. More companies are switching to 401(k) plans, which place the responsibility of investing into the hands of employees. Tax laws increased catch-up contributions for 401(k) and other retirement plans. Investors age 50 and over can contribute an additional $5,000 a year -- $1,000 more than last year. You should be saving at least enough money in your 401(k) to get the company match, or 10 percent of your annual income. So, ideally, when should you start investing money into your 401(k)? "Middle school to high school," says a half-joking Barton C. Francis of Price Waterhouse Coopers. "Not many people live below their means. That's a big problem."

Get Professional Advice
"Hire a financial planner," advises Bolton. "They can do a retirement projection budget for you and tell you if you have enough to retire on." Even if you have questions about investing in your 401(k) or other retirement plans, it might be beneficial to talk with an expert who charges an hourly rate. ...

Decide Where You Will Live
If it's not possible to keep your home, consider downsizing to a smaller one, or perhaps living in a retirement community. If you plan to keep your current home, you might consider doubling up on mortgage payments, if possible, to pay off your home before you retire.

Don't Procrastinate
Putting off dealing with your finances for retirement will only make matters worse. If you follow these steps, you can ease the strain of saving for your golden years and reap the benefits of having a secure nest egg for retirement.

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