When most of us hear the word "retirement" gears start turning.  We know there is a need to plan and save, but the right way to do that can often be a mystery. Here are some tips to help lift the veil on retirement planning.

How much do you need?

The first step in the walk to retirement is to find out where you are going.  In other words, how much money are you going to need when you retire? Most experts suggest anywhere between 60% - 90% of your current annual income will be necessary to maintain your current standard of living. These numbers are just a guideline to get you started; you will want to calculate your personal retirement needs.

Start with your current spending.  How much do you spend monthly? Annually?  Are you currently living below your income level? Remember that your current expenses might be different at the time of retirement. Many of us will have paid off our homes, cars, and student loans, and may not need the same amount of income to live off of. If you are nearing retirement, estimating your annual needs through retirement may not be that difficult. If retirement is still a dot on the far horizon, there are a few more factors you will want to take into account.

Inflation is the general increase in prices and fall in the purchasing value of money. The inflation rate has averaged 2.6% annually over the past 20 years.  Put simply, the amount needed to retire today may be far less than what is needed 10 years from now. Be sure to plan accordingly.  Whenever you plan to retire, I usually recommend calculating in inflation, plus a little extra for padding.

The questions below will help you determine how much you will need to retire:

• When do you want to retire?  Everyone wants to retire young, but the younger you are, the longer retirement is (and the more money you need).  Also factor in your life expectancy, you don't want to run short on funds at 75, and live to 100.
• What kind of lifestyle do you want to maintain?  If you are happy sitting on the front porch, you may need less than someone who wants to travel the world.  Plan accordingly.
• What is your estimated growth rate from you retirement savings?  Be conservative, plan for the worst, but hope for the best.
• Do you plan on spending your principal?  Planning on living off of investment earnings rather than principal can be a great help, and can help make your retirement more comfortable.

Calculate the gap

Now that the annual spending estimates are done it is time to see where you are at. Take into account your retirement income sources; social security, retirement plans, part time jobs, and assets. Compare that number with your estimated annual retirement need. Does everything add up? That's great. If some of you fell short of your goal, you will need to find a way to save some additional money for retirement.

Close the gap

By now you should have a good idea of what you want, and what you might realistically have.  How to close that gap is up to you, but here are a few suggestions:

• Start saving!  If you are blessed to begin saving early you will have a better chance at reaching your goals; but even if you are 20 years late to the party, today is still a good day to start.
• Setup automatic deductions. If your company offers automatic deductions to a savings plan, use them. Automated deductions reduce the risk of impulsive spending and after a few months you might not notice it is coming out of your check.
• Use the right tools. There are many tools to help you reach your retirement goals. 401(k), 403(b), IRA, Roth IRA, and annuities. All of these are great options for retirement savings. Some of these plans may be employer sponsored and some may be available through your Investment Advisor. Each plan has specific rules and benefits. Before choosing one (or more) that is right for you, be sure to review the benefits and shortfalls of each with a professional.

As a general rule, if you have an employer sponsored retirement plan, participate. Most employers offer contribution matching up to a certain percentage or amount; that "match' is essentially free money, so be sure to utilize such programs where available.

IRA's (traditional/Roth) are not usually employer sponsored.  The key difference between the two is that a Roth IRA uses after-tax dollars, alleviating the future tax burden on redemption. When you calculate in the rise in taxes over the next 20 years, a Roth may be a good option for a portion of your savings.

Annuities and life insurance are a good way to diversify your holdings. Many annuities offer options to help maintain and grow your principal in a safe way. There are also many options with life insurance that offer streams of income or principal returns even while you are alive.

As always talk to a financial professional to see what works best for your situations.  You would be surprised at the possibilities that are available to help you achieve your goals.