The first step in this process of developing a retirement plan is to identify your personal retirement savings goal. This is a simplistic view of what you will need to live on during retirement. It does not consider how much you are savings, what your current balances are, what you may expect to inherit, or even what you might receive from Social Security. Theses items will all be considered during the development of your actual retirement plan. For this step, you will basically determine just how much will you need to live on during retirement.

How much income will I need?
Most financial planners recommend that people assume that they will need 70% - 75% of their pre-retirement income each year after they retire. For example, if your annual income is $60,000 today, you should figure you will need between $40,000 and $42,000 per year to live on. Of course, this assumes that you were going to retire beginning today. The true number will be much larger, but this allows you to begin with a dollar amount based on what you earn today, and then factor inflation, the number of years to retirement, and your life expectancy to arrive at an amount that you need to acquire by the time you retire.

Unfortunately, if you look at what people want to do when they retire, most say they'd like to spend about the same amount of money during retirement as they did before retirement. You may not need to pay for commuting or other work-related expenses (clothes, etc.), but you may decide to travel or take up hobbies like golf. Yes, you may pay off your mortgage by the time you retire, but property taxes continue to rise, health care costs increase every year, and there are also taxes to be paid if your income is coming from tax-deferred accounts.

Our suggestion, at least for planning purposes, is to assume that you'll need 100% of what you live on today. If you end up having more than you actually need, you'll be much better able to survive years when the market loses, or else you'll have extra money to give to charity or your family.

How long will I need to live on my retirement savings?
This question is usually based on your life expectancy, in other words how many years after retiring will you live. There are a number of web sites that have calculators, and factor things like where you live, how you live your life, your medical condition, your family's medical history, etc. If you prefer, you can estimate by using 80 years old if you are male, and about 83 years old if you are female. Of course, there is always a chance that you will live to be 100. If you want to get your specific estimated life expectancy, based on figures from the National Center for Health Statistics, you can try our life expectancy calculator.

What will be the inflation rate?
The inflation rate indicates how much more you will have to pay for something next year than you did this year. This rate or increase in price depends on lots of factors, so it is impossible to be certain about what the rate of inflation will be in 40 years or more. What you can determine is what the rate has been in the past and use that figure. A good average is probably between 3% and 4% based on results of the last 20 years. if you want specifics on previous years, visit the Economic History Services.

What's a fair estimate of how much I will need to save?
We have provided a simple retirement goal calculator that you can use to determine how much you may need in order to enjoy your retirement based on the assumptions you have made. Once you have this figure, you can begin the next step. If you want to see how long your retirement savings will last, check out MSN Money's Retirement Planning calculator.

Step Two - Gather Information