12 Steps to Get Your Retirement Plan in Order

Last Updated Mar 28, 2011 11:26 AM EDT

When retirement gets on your radar and you begin planning your retirement, it's understandable that you might feel confused and overwhelmed -- it's hard to know where to start. There's a lot you must learn, and you'll need to make many important decisions that have a critical impact on your future.

To help you with this important task, I'm introducing a series of 12 posts, starting next Monday, that will guide you through the planning process. Each week, I'll describe a few steps to take during the week. The focus will be on actions that affect your financial security, although some will involve your health and lifestyle, since these topics are all related. The goal is to help you answer important questions such as:
  • How much retirement income will you have?
  • What might be your standard of living in retirement?
  • Will you need to work in your retirement years?
  • What steps should you take to protect yourself against common retirement risks, such as outliving your money, high bills for medical or long-term care expenses, investment losses, and the death of a spouse?
  • And ultimately, when can you retire?
The overall goal for retirement is to develop reliable sources of retirement income that cover your living expenses for a good life, no matter how long you live and no matter what happens in the economy. If you're married, this income needs to last while either of you is alive.

To give you a preview of what's coming up, here's a brief description of the steps I'll be outlining each week:

Week 1: Estimate how long you might live. You'll discuss with your spouse, family, or relatives what you want to do with these remaining years, including where you might live. For the purpose of this planning exercise, pick a few target retirement dates to see if these dates are feasible.

Week 2: Determine if you need professional advice with respect to financial, investment, legal, and/or health issues, and identify who will be on your professional team. You might need their assistance in the weeks to come with some of the planning steps.

Week 3: Take steps to improve your health, to reduce the odds of debilitating and expensive medical conditions, to enhance your enjoyment of life, and to potentially lengthen your lifespan.

Week 4: Take inventory of the financial resources that you have for retirement. Organize the paperwork and online files regarding all of your retirement resources, such as 401(k) balances, insurance, and statements regarding pensions and Social Security. You'll use this information in future weeks to help you determine just how much more you need and what you'll have to do to get it.


Week 5: Learn about the retirement income you can expect from Social Security, in particular for your target retirement dates. This is the first part of the total retirement income that you'll develop.

Week 6: Learn about the various ways to generate retirement income from your IRAs, 401(k)s, and other retirement savings. You'll estimate how much income you might receive under various methods for your target retirement dates, and then add these amounts to the estimates of your Social Security income from week 5.

Week 7: Determine an investment strategy that's appropriate for your circumstances, including how you'll use your retirement savings to generate retirement income, as discussed in week 6. You'll also consider your vulnerability to investment losses and decide which financial institutions or products and services that you'll use.

Week 8: Start an inventory of your living expenses, and determine how they might change in retirement. In this stage, you'll prepare a retirement budget. (However, you won't be able to completely finish this step until you complete some of the steps coming up in future weeks).

Week 9: Decide how to manage your housing costs. Will you need to tap your existing home's equity, and, if yes, how and when?

Week 10: Determine how you'll protect against the threat of high medical expenses. In this step, we'll look at medical insurance, and you'll prepare a budget for medical premiums and out-of-pocket medical expenses. You'll add these amounts to the retiree budget you started in week 8.

Week 11: Develop a strategy for addressing the threat of high bills for long-term care expenses. You'll factor the estimated amounts into the retirement budget you started in week 8.

Week 12: Finally, you'll be ready to estimate your total retirement income so you can determine if it will cover your estimated retirement living expenses. This will help you decide when you can retire, or if you'll need to work in your retirement years.

As you can see, there are many steps to complete in order to properly prepare for retirement. You can't do everything at once -- that's the reason for making steady progress over the course of a few months. Also, it's entirely understandable that you might take more than one week to complete the steps I'll outline for a particular week. Don't worry -- the posts will still be here when you're ready.

You may need to revisit these steps, particularly if you get to Week 12 and see that your estimated income doesn't cover your expected expenses. In this case, you may want to revisit your budget for living expenses or if you want to work during your retirement years. You may even need to revisit your target retirement dates. In addition, your circumstances might change which means you'll need to revisit some steps. That's expected -- life happens!

I'd like to make one important suggestion regarding these steps: Be sure to include your spouse, partner, and important family or friends in the discussion and planning. In fact, it may help if you have a small group of like-minded people who study the steps together and can provide each other with support, or can divvy up some of the tasks.

This may seem like a lot of effort and time, but 12 weeks of research and planning is not a high price to pay considering that you're planning the rest of your life!

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    Steve Vernon helped large employers design and manage their retirement programs for more than 35 years as a consulting actuary. Now he's a research scholar for the Stanford Center on Longevity, where he helps collect, direct and disseminate research that will improve the financial security of seniors. He's also president of Rest-of-Life Communications, delivers retirement planning workshops and authored Money for Life: Turn Your IRA and 401(k) Into a Lifetime Retirement Paycheck and Recession-Proof Your Retirement Years.

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