Financial Planning for Retirement - Detailed Steps

If you're serious about Financial Planning for Retirement these detailed steps are what you need to do it right. You probably know that the retirement calculators available at most financial services websites are much too general to be of much use for serious planning.

Follow this plan to build your own customized calculator. Good planning is critical and the cookie-cutter approach is just too risky - read on to learn why.

The information here along with the basic calculator instructions make this both comprehensive and easy to learn how to plan for retirement!

You may want to bookmark this page as you plan for retiring, and use this as your checklist.

The Budget Plan - Know what you need!

If you haven't already created your retirement budget, this is the first item on your preparation to-do list.

Start with a copy of your current budget.

If you don't have one of these, make it now.

This is a prerequisite to knowing how much money you need to be able to retire. Do it now!

Even if you have a budget that lists your monthly expenses, it may not have all the detailed information you will need. Remember, we're planning your retirement money, the income you will need when you don't have a paycheck anymore. If you don't estimate accurately or adequately, you could come up short and you don't want to be pinching pennies and kicking yourself for not saving enough!

An example retirement calculator for financial planning for retirement.

Develop or update your current budget

Create a spreadsheet (Microsoft Excel,Microsoft Works Spreadsheet, or Numbers on the Mac) and setup columns like this example (above). In the first column list all the things you pay or purchase over the course of a month. Once you have all of those things listed, think about the things you pay periodically such as insurance, taxes, vacations, and so on. Determine what they cost per year and divide by 12 to put in a monthly allotment for those things. See the image on the right side of this page. It will take you to a site offering a free personal budget spreadsheet. I tested it, and it works with Mac Numbers, too.

Where to find budget spreadsheets for PC or Mac

Double check it by opening your monthly bank statements and look for things you may have forgotten to include. When you are satisfied, examine your monthly total, multiple by 12, and see how close this comes to your current take-home pay plus any other income. If there is a big gap, you must have forgotten something. Maybe you haven't counted your pocket money, lunch money, gas money, hair styling expenses, entertainment costs, etc. You must account for as much of your income as possible on this budget.

Finally finished? Save this document as "Current Budget" or something similar. Then save it again or copy it to a new document called "Retirement Budget" and continue with the next step to fine tune it.

Begin developing your retirement budget

In your new retirement planning document, examine each category and imagine that you would be retired tomorrow. Will you have your home mortgage behind you? If so, put a big fat zero in the column for mortgage. What other changes can you make to this budget because you no longer need to go to your job?

  • Will you drive more or less?
  • Will you eat out more or less?
  • Dry Cleaning expenses?
  • More time for hobbies - will you need more supplies?

You get the idea, now put it all in there!

Brainstorm to fill in future budget items

Remember we are working on Financial Planning for Retirement Detailed Steps. This means we need to think about every aspect of spending and expenses.

Are there any categories that should be added to the retirement budget? Will you need to purchase insurance, such as for long term care? Will you be retiring before age 65? If so, you may need to purchase health insurance. If you no longer work, you may need to purchase life insurance.

Which things will cost more? Which things will cost less? Make these adjustments.

  • Health Care Expenses like prescriptions, supplemental policies, etc.
  • Long Term Care Insurance
  • Life Insurance (if your employer was your life insurance provider, for example)

If you plan to retire early, you may have special needs. (click here)

Think about how you will spend your time

I'm sure you've heard the phrase "Time is money", and once we retire we will find out how true this is.

Do you plan to travel often? Will you take classes for your hobbies? What types of entertainment will interest you? What costs should you estimate for these things?

Some of the things I've seen retirees do include building a vineyard, touring the country in campgrounds, taking music lessons, art lessons, buying things for the kids and grandkids...

  • Travel expenses - Paris anyone?
  • Classes for learning more about your hobbies or new ones
  • Do you like to decorate your home? Will you do it more often?
  • Big plans for the garden?
  • Generous gift giving
  • Gambling
  • Volunteering (driving, eating out, new clothes, perhaps?)

Check out a few other hobby ideas

Volunteer to improve the lives of others

Determine your retiree income needs

When you think you have it covered, it is time to tally up the expenses. You will need two totals: the monthly total and the yearly total which should be the monthly total times 12. If not, go back and factor in the yearly costs on a monthly basis. You should have a line item for these costs on your budget spreadsheet.

Personally, I like to have an extra amount per month built in for the unexpected things. I also plan to have an emergency fund set aside for the larger unexpected problems, like replacing a failed appliance, for example.

When you have everything accounted for in your retiree budget, you now know how much you will need each month, assuming your plans don't change. Perhaps you need a small cushion in case something does change?

Visit this link for more about investment for retirement: Investment to Retire

Income sources - How will you finance this monthly amount?

Is Social Security a major component of your financial planning? If you plan to work until your Social Security retirement age, you should already know your estimated benefit amount. The difference between what you just determined that you need and what your social security benefit will be is the part you need to save for.

If you are planning for two, did you consult your partner to get input on the expenses? If not, you really need to talk about this so you both have the same expectations! Go get that information and update your retirement budget if necessary, then come back to this step.

Let's take an example. Suppose you decided that you need $3500 per month. Let's say that your SS benefit will be $1200 and your partner's will be $1400. You have $2600 income from SS, but you need $3500. This leaves $900 that will come from your savings.

What is your "full" Social Security Retirement Age?

Determine your retirement savings goal

You should now have an idea of how much you will need from your savings each month to cover the gap between Social Security and what you (and your partner) need.

So, now you know the monthly amount, how do you figure out the total savings that will cover this amount for all your years of retirement?

One way to get a reasonable estimate is to assume you might purchase an annuity. Annuities are insurance products. You pay an insurance company in advance, then they pay you for the period of time you both agree on. This is very similar to the way a pension plan works.

For example, according to an example from, a couple ages 65 and 63 in NC can purchase an annuity that will pay them $900 per month for life for $184,672.

My approach would be to save much more than this so you have room to change your plans.

You may not want to use an annuity to finance your retirement.

This is where your financial planning expert comes into the picture.

This person can help you decide how you want to structure your retirement investments.

They will work with you to determine your personal risk tolerance, goals, and risks.

The purpose of this website is to help you prepare for the discussion.

Every few years, take time to do an assessment of your portfolio, or have an advisor review it.

Congratulations on reaching the end of your Financial Planning for Retirement Detailed Steps! If you haven't already done so, you may want to browse these pages and think about other aspects of your retirement plans, the non-financial aspects. I wish you a comfortable and happy retirement!

How does your result compare to others, especially the real people?

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