What should I do first?

CNN Money

The path to a successful retirement starts with creating an overall plan.

To live well in retirement, you no longer can rely solely on a company pension plan or Social Security. Instead, you will have to depend on how skillfully you plan and invest, and whether you make good use of tax-advantaged savings plans such as 401(k)s and IRAs.

First, estimate how much you will need. One rule of thumb is that you'll need 70% of your annual pre-retirement income to live comfortably. That might be enough if you've paid off your mortgage and are in excellent health when you kiss the office goodbye.

But if you plan to build your dream house, trot around the globe, or get that Ph.D. in philosophy you've always wanted, you may need 100% of your income or more.

Remember, too, that your health care expenses are likely to go up in retirement, if only because you'll be paying more for insurance, especially if you retired prior to being eligible for Medicare, says Gordon Homes, senior financial planner at MetLife. Some employees who retire before 62 don't realize how much their employers contribute to health care, Homes says, which has led some to consider retiring after 65.

Second, figure out how you'll meet those expenses. There are three main sources of retirement income: Social Security, pensions and annuities, and your savings. Start by determining your estimated Social Security benefits. (If you haven't already received a statement in the mail, you can order one online or use an online calculator to make estimates based on expected earnings.)

Next, add in any annual payouts you expect from an annuity or company pension.

If it's not enough, it's time to think about where that money will come from. Count on needing at least $15 to $20 in investment savings to cover each dollar of that shortfall. If your projected retirement expenses exceed Social Security and pensions by, say, $20,000 a year, that means you'll need a nest egg of $300,000 to $400,000 to bridge the gap.

CNN/Money's Retirement Savings Planner can help you come up with an estimate of how large a nest egg you'll need. And our asset allocation tool will help you find the right mix of stocks and bonds to help you build it.





Copyright © 2014 Cable News Network LP, LLLP. An AOL Time Warner Company. ALL RIGHTS RESERVED.

The content on this page was created by CNNMoney.com and is made available under license to Ariel Distributors, LLC (Ariel). The content is for general information only and does not necessarily represent the opinions of Ariel. It is not intended to provide tax, investment or legal advice. You should obtain personal advice from qualified professionals. Certain content does not relate to products or services provided by Ariel. The information from these pages is believed to be reliable; however, Ariel cannot guarantee its accuracy or completeness. This content contains links to other Internet sites that are entirely independent of Ariel's site. The presence of these links does not constitute an endorsement by Ariel of any such site, its products or services.


By clicking the above links, you'll leave this site and go to a third-party website. Ariel does not control the content or privacy practices of the other website and does not endorse or accept responsibility for the content, policies, activities, products or services offered on the site.



Past performance does not guarantee future results. © Ariel Investments, LLC. The mutual funds offered by Ariel Investment Trust are distributed by Ariel Distributors, LLC. Use of this website is subject to our Terms & Conditions of use. Each of the investment products, mutual funds or services referred to in this site may be offered only to persons in the United States. This web site should not be considered a solicitation or offering of any investment products, funds or services to investors outside the United States. Original illustrations © Omar Rayyan 2007.