Financial planning prior to retirement is focused on asset accumulation, tax minimization, and maintaining a budget that allows for maximum savings. Retirement financial planning, however, is focused on these different objectives: maintaining an adequate income without salary or wages, maximizing pension and social security, having adequate health and long-term care protection and minimizing financial risk. You can’t know for sure if you have adequate resources until you do some number work. If you find this nitty gritty retirement financial planning stretching your patience, then hire a retirement planner. Here are the steps:

1. Estimate your retirement spending needs: housing (including new furniture and updating), food (including dining out), insurance (including long-term care), personal expenses, vacations, entertainment, utilities, transportation, taxes (income and property), etc. Add to this list anything that applies to your desired lifestyle. Add up the total and now you know how much you need, which is Step 1 of your retirement financial planning. Let’s say this figure is $50,000.
2. Next, you want to see how much you have and create a retirement income plan. Add your sources of retirement income including social security, pensions, and annuities. An example follows but please note that the illustration is hypothetical and not indicative of the performance of any particular product. From any savings such as IRAs and 401k and other investment accounts, assume a withdrawal rate of 5% annually and the nest egg should be fairly safe at least for 30 years. Note that just to maintain your standard of living, you need to always leave some earnings behind in your nest egg to account for inflation. An item that costs $10,000 this year will cost you $10,300 next year. Even if you don’t care about having anything left and want to spend more, you don’t have much wiggle room. For example, if your nest egg were to earn a constant 6% annually and you withdraw 8 % annually of your beginning balance, you exhaust the fund in 24 years. You could easily outlive your money and that’s why it’s important to stick to the retirement financial planning 5% rule
3. Compare your total sources of income from Step 2 and your expenses from Step 1. If you have excess income, congratulations—you’ve done a good retirement planning.
4. If you have a deficiency, you have a few options:

• Adjust your lifestyle and spend less.
• Maintain your lifestyle, but move to a less expensive area of the country or out of the country
• Work part time retirement

Retire later—by working a couple more years, a $500,000 nest egg growing at 6% accumulates an additional $61,000 (6% x $500,000 compounded for 2 years=$61,000). That additional principal provides an additional $3,050 of spending money annually (assuming 5% annual retirement return x 61,000). *Note that later in life, say at age 5, you may switch your strategy and decide to “annuitize” some of your assets i.e. spend them down to zero and give yourself more income today. One way to annuitize your assets is with a life annuity, as payments will last as long as you do. (Get details from your financial or insurance advisor).