by Jeff R. Smith

Created on: January 31, 2011

2040, average life expectancy among those who reach age 65 is projected to rise from age 81 to 85 for men and from age 84 to 88 for women, according to the National Center for Health Statistics. While that's good news, it also means that careful retirement planning is more crucial than ever before.

Project your life expectancy.  Most financial planners use age 85 to 90 as a conservative estimate. The longer you live, the more money you'll need to save.

Estimate how much money you will need in retirement. Financial planners recommend that you estimate retirement expenses to be about 80 percent of expenses before retirement. That should allow you to maintain the nearly the same standard of living you now enjoy. If you plan on traveling a lot or want to buy a second home, you're going to have to save about 10 percent more. Figure in 3 to 5 percent for inflation.

Calculate a balance sheet to evaluate assets and liabilities you will have accumulated by retirement. Assets are what you own, liabilities are what you owe. Take into consideration retirement plans that don't have the fixed income payout of pension plans, such as 401(k), 403(b), Section 457 plans, profit-sharing plans and IRAs. Don't forget to include income from potential inheritance, and profits that may come from things like selling your home for a less expensive one. See 239 Track Your Investments and 247 Plan Your Estate.

Estimate your retirement income sources. Retirement income comes from four main sources: Social Security benefits, pension and retirement accounts, personal savings and investments, and wages from income earned during retirement. Social Security benefits don't kick in until you're 62, and benefits increase if you wait until you're 65. If you do start receiving your benefits earlier, consider investing at least a portion of them.

Live modestly. If you work hard toward saving now, you'll achieve your goals of retiring sooner. It may mean making a few sacrifices, but it will pay off in the long run. See 15 Live With Less.

Maximize your tax-deferred and tax-free savings opportunities. Take advantage of employer-sponsored retirement plans such as 401(k), 403(b) and 457 plans. You wouldn't pass up free money, so be sure to fully fund any portion of a 401(k) that is being matched by your employer and max out your contribution if you can. If you have savings that exceed the maximum allowable amount in your employer-sponsored retirement plan, your IRA is just the place to stash it.

Invest

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