Financial Planning and Saving for Retirement

How much money will you need to have for the retirement you see for yourself? Where will it come from? The recent rocky economy, talk of Social Security reform, and a few high-profile pension fund failures have many Americans thinking more seriously about how they will fund their retirement. For years, financial planners have talked about retirement income as a “three-legged stool” that stands on Social Security, employer-related pension or retirement plans, and personal savings. Because they are healthy and active, more retirees are adding a fourth leg to that stool—part-time work.

Financial planning for retirement is about having a plan for your money. It basically comes down to five questions:

Where do I (we) want to be?
How much time do I (we) have to get there?
Where am I (are we) now?
What investment vehicles give me (us) a chance to get there?
How much financial risk am I (are we) willing to take? (See sidebar on Investments and Risk.)

The following sections take a brief look at questions 2 and 4. There are numerous sites on the Internet that offer myriads of planning tools such as savings calculators, online advice providers and planning software. Experts recommend the following:

Use tools from non-profits and those not sponsored by a particular investment company first.
Use more than one tool.
Evaluate the tools and resources by asking these questions:

Who is responsible for the information on the site?
What's the purpose of the information? For example, is it to sell you something?
Compare it with other sources. Are they similar or very different?
How old is the information?

Just remember that the output of a calculator or other interactive tool is only as good as the information that you put into it.

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