retirement

3 keys to successful retirement planning

If you thought buying a home was hard, just wait until you start retirement planning. The toughest fiscal challenge most people face, planning for the nonworking years takes time and money. Those who do it well will spend their golden years living financially stress-free. Here's how to become a retirement planning ninja.

Create a target goal

How much will you need? That's the million-dollar question, literally. The Department of Labor estimates that you'll need to replace 70 percent to 90 percent of your pre-retirement income for each year of retirement, so you can estimate your target goal based on your current income and life expectancy. Of course, this is just a rough estimate. Factors such as whether you'll own a home at retirement, vacationing habits and medical expenses will significantly impact how much you'll need to save. While it's impossible to predict exactly how long you'll live, Bankrate's life expectancy calculator can provide an estimate based on your current lifestyle habits.

Assess your progress

With a target goal in mind, you can assess how well you're doing. Here's where it gets tricky. On top of examining how much you've already stashed away in a 401(k), 403(b), 457 plan or an individual retirement account, accurate retirement planning requires you to factor in such variables as Social Security benefits, the inflation rate, upcoming salary raises, the rate of return on your current retirement investments and the value of other assets such as pensions and life insurance. You may not know all the answers offhand, so you'll have to employ some guesstimates.

To simplify the math, Bankrate's retirement planning calculator can provide a projection of how much you'll have based on your current savings rate, as well as some suggestions on how to improve your retirement picture.

Make a plan

Now that you know where you stand and how much you'll need, it's time to close the gap. That means upping yearly retirement contributions and eliminating outstanding debts such as credit card charges, car loans and student debt. It could also mean delaying retirement and living frugally before and after retirement.

Thanks to compound earnings, the more you stash away at a young age, the less scrambling you'll have to do later.

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