STEP TWO: DETERMINE YOUR RESOURCES

Chances are you already have some retirement resources. Your next step will be to calculate the income you may expect from your current resources and determine whether it will meet your needs.

Start by determining the income that will be provided by your current sources of retirement income: your pension plan and any employer-sponsored savings and investment plans you may participate in at work; any individual retirement accounts (IRAs) you have established; other investments and annuities; your savings accounts; and, of course, the value of your home and other property.

What about Social Security? The Social Security "normal retirement age" has been inching up, and benefits have become taxable, making it more difficult to plan using these benefits in retirement plans. While you may start taking reduced benefits at age 62, you won't receive full benefits until your normal retirement age. If you wait until you are age 70, you will receive even greater benefits. If you are in your 20s, 30s, or 40s, it may be best not to include Social Security benefits in your planning at all.

Next, you will need to convert all your sources of retirement income into an annual income stream and make an estimated adjustment for inflation. When you subtract your estimated annual income from your estimated needs, you will know where you stand.

If you are like most people, you will discover that you will need more income than you can currently count on to meet your retirement needs. The next step is to plan to make up the shortfall.