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Retirement Planning for Do-It-Yourselfers

If you don't have a financial map for your golden years, use these tips to get started

By Ellen Hoffman

Last week, President George W. Bush named a commission to plan the future of Social Security. The House of Representatives also passed a bill that -- if it passes in the Senate and is signed by the President -- would allow you to stash away more tax-deferred retirement money in your 401(k) or IRA. But no matter what Washington decides, you still have the ultimate responsibility not only of paying for your retirement but making a plan to meet your financial goals.

One way to create a plan is to pay a professional to guide you through the process. In my Apr. 19 column, "When It's Time to Pick a Planner", I offered tips on how to find help in charting a course through stormy financial seas to retirement. But while having a financial planner gives some people a greater sense of security about their retirement, others may have had a negative experience with a planner or simply don't feel comfortable hiring a stranger to advise them on financial issues.

In a survey conducted last December, the Forum for Investor Advice, a nonprofit organization of financial professionals, asked people why they don't work with a financial adviser. The reason cited most often -- by 80% of respondents-- was that they're "confident in their own ability" to manage their money affairs. Sixty percent say they "do not want to pay fees," and 57% reply that it's "difficult to find an adviser to trust." (The study defined financial adviser as a professional who provides "ongoing, customized advice and service to investors.")

DRAWING YOUR OWN MAP.

  If you fall into one of these categories, you shouldn't be timid about creating your own plan, says James McFadden, president of the Manpower Education Institute, a nonprofit educational foundation in New York City. "Most people overwhelmingly don't need a financial planner. To present your situation fairly to a planner, you have to do a lot of [preliminary] work yourself. Any planner will require you to come up with [records of] your present budget, your assets, your net worth, your insurance." He points out that many resources -- including the Institute's book, Ready or Not: Your Retirement Planning Guide -- provide lists of the information you need and explain how to transform that data into a plan.

The primary challenge of retirement planning is generating enough money to last through your whole retirement. One of the biggest mistakes people make, says Dallas Salisbury, president of the Employee Benefit Research Institute in Washington, D.C., is "underestimating how long they'll live." Instead of basing your estimate on tables that show average life expectancy, he suggests that you get an estimate based on your own health status and family history by playing the longevity game on the Northwestern Mutual Life Web site, www.northwesternmutual.com.

Other key inputs you'll need to create your retirement financial plan include:

A budget: This requires you to think seriously about where you'll live, how you'll spend your time, and what that lifestyle will cost. A good way to start creating a budget is to record all of your current expenses and then brainstorm about changes that will occur when you retire. Will you move to a less expensive home? Pay less taxes? Take more expensive vacations? Make one budget for necessary, fixed expenses and another that includes discretionary expenses such as vacations.

A list of your assets: This should show your net worth. Be sure to include the value of your home and any other real estate, as well as cash, life insurance, and investments in retirement accounts, banks, and all other accounts;

An income projection: List money you may earn from part-time work or a small business, Social Security, a pension from any source, and investment income. If you plan to generate income from rental property, include that.

Financial calculations: Once you know the size of your retirement budget, you need to figure out how to parlay the income streams -- including from investment proceeds -- into the amount you'll need to finance those next 20 or 30 years.

For good basic information, start by reading Principles of Retirement Planning, available from accounting firm Deloitte & Touche, at www.dtonline.com/prptoc/prptoc.htm.

Another concise, basic source is How Much do I Need to Save for Retirement?, a four-page article by Barbara O'Neill, published by Rutgers University Cooperative Extension as part of a financial-education campaign. You can see it (and print the worksheets) at www.rce.rutgers.edu/pubs/pdfs/fs431.pdf. You can also order a Wealth-Care Kit, a free package from the nonprofit National Endowment for Financial Education.

The Internet is riddled with retirement calculators, but you can't always assume that they'll generate accurate estimates of your own retirement budget or income. When I tried to estimate my own retirement income, a calculator on a brokerage Web site insisted on using a Social Security benefit figure for me that I knew was wrong. It would not accept my figure, so I could not complete the calculation.

Some other sites don't allow you to enter income from Social Security or from miscellaneous sources, such as real estate, in the calculation. However, the American Savings Education Council, a nonprofit group that promotes saving for the future, has many very complete calculators -- on everything from retirement expenses to inflation's potential impact -- at www.asec.org/tools.fincalcs.htm, as well as an interactive Ballpark Estimate form at www.asec.org/int-blpk.htm for formulating a savings goal.

UNCOVERING YOUR DATA.

  You can also learn how to draw up your own plan by attending a financial-planning or retirement course or seminar sponsored by a local college or university, senior center, or other nonprofit organization. The AARP (formerly the American Association of Retired Persons) is offering a series of seminars aimed at people 45 and older, entitled 10 Steps to a Better Financial Future. To find out if they're being offered in your area, call the AARP at 800 424-3410.

The stock market may look more promising today than it did a month or so ago, but recent history shows us the dangers of assuming that you can count on an up market to pay your bills when you retire. The value of drawing up a plan is that once you know how much your retirement income and expenses are likely to be, then you'll have a basis for developing strategies for meeting your goals. With your own financial roadmap in hand, you can then decide whether you want professional help for the next step -- the saving and investment that you must do to implement the plan.

Hoffman writes Your Retirement twice a month, only for BW Online

Edited by Patricia O'Connell

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