Planning for the financial aspects of retirement is essentially a matter of creating a plan to get from one's present position to the position which is expected or desired on retirement.
The first step is to determine the current financial position. This is usually a simple exercise in adding up the value of assets and deducting the value of liabilities.
The second step is to determine the desired financial position on retirement. This is a more difficult exercise involving assessing three key variables:
1. how much income will be needed on retirement and where will that income come from?
2. in addition to assets dedicated to producing income, how much money needs to be set aside for one off events or other contingencies?
3. how much money will be invested in assets which will not be used for 1 or 2?
The answers to the three questions will determine how much money needs to be accumulated to achieve the desired financial position on retirement.
The third step is to figure out how to bridge the gap between the current position and the desired position.
If all this sounds simple, it's not. The next few posts will look at each of the three steps involved in preparing a financial retirement plan and identify some of the difficulties in producing a plan that will be successful.