Are you on track for retirement?

If you don’t know the answer to that question, you’re not alone. According to the Employee Benefits Research Institute, more than half of American workers have yet to compute how much money they will need when they quit working. Among them, 77 percent can only guess how much will be enough.

Reasons for this vary, but the uncertainty on Wall Street coupled with the new employer and government mindset of “no pensions … not our problem” has compelled many people to look at retirement as simply a vision and not a reality. The traditional retirement paradigm relies on certain assumptions that are no longer valid. In fact, with the increased lifespan of Americans and the disappearance of the pension system, many retirees are looking at the frightening prospect of outliving their resources.

Considering the current financial landscape, it’s more important than ever to understand that many individuals both underestimate how long they will live in retirement and overestimate the returns they will see on their investments. No longer can many retirees simply move all their money into CDs. It’s usually not that straightforward anymore - and as such, a much more holistic approach must be taken in order to help realize your retirement dreams.

Gaining Perspective

With so many variables to consider, contemplating retirement can be stressful, and determining where your retirement nest egg will come from can be daunting. Many moving parts are involved - including personal savings and investments, retirement funds like IRAs or 401(k) plans, a pension (if you’re fortunate enough to get one) and Social Security. Other factors such as mortgage, car loans, medical needs, beneficiaries and risk tolerance also must be examined when developing a viable plan. The first step, however, is to define what “retirement” looks like to you.

For some, it means slowing down and simply enjoying the company of children and grandchildren. For others, it involves more capital-intensive pursuits. If you want to travel around the world, for example, you’ll need to plan accordingly.

Once you’ve determined your retirement ground rules, several factors must be considered in order to calculate how much you’ll need to save in order to realize your goals. These variables include:

• Your current age
• The age you intend to retire
• Your average life expectancy
• Your current income
• Your cash flow during retirement
• The amount of your retirement savings
• How much you expect to contribute to savings
• The Expenditures during retirement
• The Risk level of your investment portfolio
• The Historical return rates on your portfolio

By developing a complete fiscal scenario based on these factors, your financial advisor can help you determine what happens to your accumulated savings based on when you start investing, how much to save, how long your retirement savings can last and even how to choose between a traditional IRA and a Roth IRA.

Staying Ahead of the Curve

According to the Employee Benefits Research Institute, more than half of those who have determined how much they need in retirement have been motivated to contribute more to a retirement plan or make investment changes as a result of the collapse of the real estate market and the recessionary economy. And although you may have suffered a devastating loss in your 401(k) and/or investment portfolio, take solace in the fact that you can take steps to close the gap between your savings and spending requirements and get back on track to creating a comfortable retirement.

The one constant in today’s world is that things are constantly changing. By establishing a strong relationship with a trusted financial advisor, you can stay on top of fluctuations in the economy and adjustments in your personal life and modify your existing retirement plan to continue to meet your long-term goals. The better prepared you are, the more likely you’ll be able to enjoy your golden years on your terms.

About the Author:

Gregory Broner is a private banking executive at the Central Florida affiliate of Fifth Third Bank. He has 23 years of experience in the banking industry.