Planning for retirement takes forethought, but it also requires honesty and self-awareness. In our quickly changing world, your retirement may look a lot different than your parent’s retirement did. Many aspects need to be considered as you plan for retirement: 

- Your wants and needs – What do you want to do in retirement? 
- Inflation – How far will your money go in retirement? 
- Your retirement savings – You need to provide for your retirement, as pensions become a thing of the past and social security may be at risk.

As you begin to define what a good retirement looks like for you, try to avoid making the following mistakes.

Failing to Adequately Save for Retirement

You need to consider many things as you save for retirement: 

- How much do you want to live on annually in retirement? 
- How long are you expected to live? As medical advances increase life expectancy, you may run the risk of outliving your retirement savings.  
- What is the anticipated rate of inflation when you retire? 
- How do you want or need to spend your time in retirement? Will you need to work at a part-time job?  
- Can you adequately plan and save for anticipated medical expenses?

Retirement calculators can help you determine what you need to save now to meet your retirement goals. Calculators may factor in any of the following: 

- Current age 
- Age you wish to retire 
- Amount currently saved 
- Anticipated rate of return on investments 
- Anticipated rate of inflation 
- Amount of income you wish to live on annually in retirement

Visit the ING Web site at http://www.ingretirementplans.com/incomewizard/default.html and try their easy to use retirement calculator.

Underestimating Inflation’s Impact

If expenses seem high in the present, it is hard to imagine that they could be more expensive in the future. However, to illustrate, at 4% inflation, something that cost $100 in 2008 would cost $180 in 15 years.

It may be important to factor inflation into your retirement planning. Financial advisors may use an estimate of 4%. Visit the M&T Bank Web site at http://www.mandtbank.com/personal/invest/retirement.cfm to view a table illustrating inflation’s effects on everyday expenses.

Underestimating Health Care Costs

According to an article on the U.S. News and World Report Web site, retiree health care costs increased 41% between 2002 and 2008. Additionally, fewer companies offered health care benefits to retirees. The article estimated that a 65-year-old couple retiring in 2008 would need $225,000 to cover health care costs in retirement. This amount may continue to increase.

Consider possible health care increases while planning your retirement, and refine your health care retirement plan to meet any individual health needs.

Owing Too Much on Your Home in Retirement

Some retirees make the mistake of entering their golden years with too much debt. A large part of that debt may be a home that is not yet paid for, particularly if that home is bigger than they actually need.

Financial planners often recommend that you pay off your mortgage prior to retirement. You may also want to consider downsizing to a smaller home in retirement, to minimize costs and possibly decrease maintenance needs.

An article on the MSN Money Web site looks at the impact of buying too much house early in your life. Overextending yourself for a large mortgage payment can also impact your ability to set aside money for retirement.

Dipping into Your Retirement Funds Prior to Retirement

You may seriously want to reconsider taking money out of your retirement plan prior to retirement. Tapping your retirement funds now robs you of many years of potential earning power. Also, you will likely pay taxes and penalties for early withdrawal. Leave your retirement funds untouched and let them work for you.

Nonetheless, households often tap retirement assets early during tough economic times, as The Boston Globe attests.

Depending Completely on Social Security to Fund Your Retirement

Diversification may be the key to spreading out risk; however, it may also be a bad idea to depend solely on one source of income. Planning to depend entirely on Social Security to fund your retirement is unwise – particularly as we live longer and the ranks of retirees swell across the country. An article on the Heritage Foundation Web site at http://www.heritage.org/press/commentary/ed052406b.cfm addresses some of the strains on the Social Security system.

You may want to consider funding your retirement using a number of tax-advantaged instruments such as: 

- IRAs (ROTH or traditional, depending upon your financial situation) 
- Company sponsored programs such as 401(k)s, if available

If you are able, supplement that with additional savings. Your pension (if you have one) and social security (if still available by the time you retire) will round out your savings strategy.