STEP THREE: PLAN TO MEET YOUR GOALS

Perhaps you're one of the lucky few whose current retirement resources are greater than their anticipated needs. Good for you! You might consider shifting some of those resources to your current needs, or making some more adventurous investment decisions.

For the rest of us, the task will be planning to make up the shortfall between what we'll have and what we'll need. You might start by deciding to decrease your needs: retire later, live on less, do without the block-long Winnebago.

Or you might decide to act now to increase your income when you retire. Establish a personal budget that lets you set aside some money from your current expenses and invest it in your future. There are lots of good reasons for doing so.

Tax savings. The US Government has established a number of ways to save and invest for your retirement that allow you to protect your income and earnings from taxes. The tax-deferred savings program [401(k) or 403(b)] your employer may offer is an example: You can invest your contributions in a variety of investment choices, and both your contributions and the earnings on your investments are tax-free until you take them out. An IRA and tax-deferred annuities are other examples of retirement investments that reduce the tax bite.  The miracle of compounding. When you invest your funds, your money earns money, and then that money earns money, and then—well, you get the idea. As an example, $1,000 invested pre-tax in a tax-deferred savings plan that pays a relatively modest 8 percent interest rate will grow to a value of over $21,000 in 40 years. The sooner you start building for retirement, the less you'll have to take out of your current spending, and the more you will have to live on later.

You now have a fairly good idea of what needs to be done. Let's review.