by Natalia Jones

Created on: March 22, 2009   Last Updated: September 12, 2009

"Retire from work, but not from life". M. K. Soni. This simple sentence gets at the essence of why many fail to plan for retirement. Aside from the fact that the majority of people see retirement as some far off abstract concept that they will eventually get to, many also see retirement as a dead end. They fail to realize that life continues in much the same way. The need for food, clothes, entertainment even housing (if your mortgage is not paid off by then) continues, but without the cushion of a monthly pay check.

The reality of this fact can be quite daunting. Not planning for retirement can be equated to losing your current job and being faced with living off your savings. How long do you think your accumulated savings would last?

There is no need to be caught in this predicament. The key to being prepared for retirement is assessing your needs. Every individual will have unique needs but the process can be applied by everyone.

The first step is to imagine what you want your retirement to look like. Imagine you just left your retirement party and you are on the way home. What is on the road ahead? Maybe you envision living in the same house you currently live in or maybe you would want to wake up in a completely different place.

Whether the answer to this question conjures images of having a morning stretch in the same room you sleep in now, or sipping a cup of tea looking out on the ocean of your new island home, the reality is you would need money to continue living. You would need funds to upkeep your home, to pay bills (they don't care if you're on retirement) for gifts for grandchildren maybe, and for the occasional trip. You don't want to find yourself in the ironic position of having all the time in the world to travel and not enough money to finally do it.

Now that your imagination is all juiced up it's time to get back to reality. There is no point in day dreaming of the perfect retirement if it is not possible given your financial position and the time you have left before you retire.

The next step is to document how much you currently spend in a year. Categorise your expenses so you can easily see how much goes to food, housing, gas, new clothes, gifts, house maintenance, health care and so on. It is extremely important not to under estimate these figures, as having a clear snapshot of your spending now can help in highlighting areas that can be trimmed to help you achieve your goals.

Of course, now you also have to factor inflation into the picture. What you have done so far is calculate your current annual expenditure. However, the unfortunate truth is that it is almost guaranteed that one dollar today will be worth much less than the same dollar at the time you retire. Therefore you need to multiply your annual expenditure figure by an average expected inflation percentage to get a real estimate of the dollar amount you would need to have in the future to have the same standard of living.

The results of this simple exercise can be quite shocking. Many people don't realize exactly how much money literally slips through their fingers each year. The good news is that there are ways to get you to where you want to be. The only requirement is that you plan and then of course follow through.

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