In the future, people will be highly dependent on personal and retirement savings programs to get through retirement. The guaranteed benefits of old-style pension plans are almost a thing of the past. Interest rates and stock market returns have been inconsistent recently and have no clear direction for the near future. Finally, Social Security only provides a subsistence level benefit.

Today's workers are going to have to save more, and more aggressively, to accumulate and maintain enough money to see them through. The traditional estimate of 80 percent of pre-retirement income for living costs simply may not be enough for everyone.

In 2006, the first of the Baby Boomers are heading into retirement. Overall, Boomers are wealthier than any generation in history but they will face financial issues that their parents and grandparents never dreamed of. Younger people in Generations X, Y and so on will also have a myriad of financial concerns that extend well into their retirement years.

According to the Social Security Administration, a 65 year old retiring in 2006 can expect to live for an additional 17 to 21 years; approximately 25 percent of those retirees will live for close to 25 years. This means that your accumulated assets and retirement savings are going to have to work harder, longer, and more effectively in order to provide for your retirement needs. Not surprisingly, the most expensive cost projection is healthcare. According to AARP, retirees can expect to spend around 19 percent of their income on healthcare expenses, which will undoubtedly increase as the years go by.

Today, the average Social Security benefit is just about $1,000 per month. Expect Social Security benefits to be cut in the future, and Medicare premiums to rise, as worker demographics change and the federal government attempts to keep these programs afloat.

"Today's workers are going to have to save more, and more aggressively, to accumulate and maintain enough money to see them through."

From a planning perspective, the longer you stay in the workforce, the longer you can keep your retirement assets working and growing. Although many pre-retirees plan to work past age 65, illness or injury often derails their plans. Even without such medical concerns, your expenses may actually increase if you want to travel, start a business or new hobby, or return to school.

Like any journey, it is important to know where you are starting from if you want to reach your destination. As a starting point, gather all of your financial documents, such as 401(k) statements, IRA statements, information on bank accounts, etc. Likewise, gather information on your debt structure so you can plan how to eliminate unnecessary expenses before going into retirement. This is the foundation for your personal balance sheet and consolidates all of your financial information in one place.

Make a few notes on a piece of paper, with input from your spouse or partner, outlining what types of post-retirement activities interest you. Estimate the costs of these activities in today's dollars and factor 3 to 3-1/2 percent inflation annually to calculate the future value of those figures.

Next, use one of the retirement calculators you can easily find on any major financial website or through a web search. Try to use more than one, since the programming might differ from site to site. This process should give you a fairly solid idea of how much you should be periodically saving so you can adjust your contributions.

Thankfully, there is still plenty of time for most pre-retirees to pull together a long-term plan. If you have had a late start, or a very low savings balance, you will likely have to choose between today's discretionary expenses versus tomorrow's necessary expenses.

After taking the steps outlined above, a close look will have to be made at cutting unnecessary expenditures so that those dollars can be redirected to savings. Review your long-term plans and factor in the costs you expect to incur. Remember, medical and healthcare costs are likely to consume a larger portion of your budget as you age, so make sure you take those into account.

If this process sounds overwhelming, it is important that you seek out a qualified professional to help you calculate your future needs and current savings goals. The sooner you begin this process, the better off you will end up in retirement.


Paul Stropkai is a financial counselor with Total Financial Solutions. E-mail your financial questions to tfm@insidescv.com.