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Attaining secure retirement is a vital financial goal

Published 12:13am Sunday, August 21, 2011

Planning for retirement is a lifelong process. Whether you are just starting to invest or you are well into your working years, this list can serve as a starting point to help prepare you for this important financial goal.

One of the first and most important steps you can take is to estimate your retirement income needs. This task involves identifying your potential retirement expenses, as well as the amount you might receive from various sources of retirement income (e.g., Social Security, pensions, personal investments, etc.).

For Social Security, you should be receiving a personal statement of estimated benefits each year. If you aren’t receiving these statements, visit the Social Security website at www.ssa.gov. Of course, the exact amount of your Social Security benefits will depend on your earnings history. For information about your pensions, 401(k)s and other employer-sponsored retirement benefits, contact your company’s human resources or benefits administration department.

Calculating your estimated income from various sources will give you an idea of how much you may need to accumulate during your remaining working years to fill any income gaps. Do not be surprised if the numbers add up to a large sum — after all, this money may need to support you for 20 or 30 years. Fortunately, there are ways to make the most of your savings and investments.

Starting early and contributing as much as possible to employer-sponsored retirement plans and IRAs may help you to potentially accumulate more money. Why? Because investing in these tax-advantaged accounts means your money will work harder for you. The longer the money sits untouched, the more it can potentially compound.

Another vital step: Determine an appropriate asset allocation — how you divide your money among stocks, bonds and cash — for your portfolio. This should be based on your financial goals, tolerance for investment risk and time horizon. Be aware that your asset allocation will need to be adjusted periodically in response to major market moves or life changes.

Once you are nearing retirement, you will want to craft a solid plan for distribution of your assets. Do you know one of the greatest risks that retirees face? According to the Society of Actuaries, it is the possibility of outliving their money. That is why it is essential to determine an appropriate annual withdrawal rate. This amount will be based on your overall assets, the estimated length of your retirement, an assumed annual rate of inflation and an estimate of how much your investments might earn each year.

As you can see, planning for the different phases of retirement is a lifelong process. Following is a list that can help you along the way.

Key Smith is an associate at Natchez Wealth Management.