Retirement planning for dummies

In the months and years ahead, there will be more writing here about retirement planning and managing retirement income. About six months removed from mostly ordinary work-a-day lives and still close enough to our mid-forties to call it such, things are going pretty well so far - the great unknown is now a little less unknown.

But, every time one of these articles pops up - Six Critical Retirement Missteps - it reminds me of how our retirement is anything but ordinary.

Money Magazine and Kiplingers provide much useful information about all the things that you should and shouldn't do when planning for and/or during retirement and the six missteps in the story above are all things that you really should avoid:

1. Withdrawing money too soon
2. Interrupting annual payments
3. Taking a check
4. Mishandling company stock
5. Ignoring taxes
6. Waiting too long

But, clearly, all of these helpful articles miss the big picture ideas that are far more important than all the common sense minutia that seems so commonplace in these personal finance publications.

In my first attempt ever, I'm going to try to sum up my views on how to properly plan and execute a sound retirement plan.

Here goes:

1. Build a big pile of money
2. Retire
3. Don't outlive your big pile of money

A brief description of the three step process is provided below and the details will be filled in over the coming months and years.

Don't Buy Things You Don't Need

In many ways, building a big pile of money is a lot like that Saturday Night Live skit "Debt Management" - getting out of debt really can be as simple as "don't buy stuff you can not afford", yet it seems the entire world is set up to work against you when you attempt to do that.

Saving for retirement is a lot like that - spend less money than you make, then save the rest. If you don't make much money, then your options are a bit more limited - certainly my approach will do you little good because it is predicated on having a big pile of money at some point in time.

But, if you do have a good income and you don't ratchet up your spending to keep up with the neighbors as your income rises, you stand a good chance of succeeding at building a good-sized pile. That's reason numero uno why most people will never accumulate any real wealth - they spend too much and go into debt to spend even more, in many cases in a vain attempt to keep up with their neighbors.

Of course the entire U.S. economy is predicated on spending more than you make, so it's easy to understand why so many people do it.

Now Stop Working

The second step in the process - retiring - that's actually the easiest part. At some point during step 1 you'll realize that you probably have enough money and you can exit the rat-race and go live somewhere that you used to just take vacations.

Of course if you're one of those individuals who just wants to work for the rest of your life or if you've got three ex-wives and seven kids, you may find it more difficult to stop than others might.

You should keep this in mind during step 1.

If you can operate your own part-time business in retirement - something that you love to do and would continue doing even though it isn't enormously profitable - well, that's the best kind of business to run because it's not really work.

Change the Way You Think About Money

By far, the hardest part of the process is step number three - making your pile of money make more money so that you don't outlive it. Unfortunately, most people work until they are around 55 or 60 and then they try to learn an entire life's worth of personal finance in just a couple of years. They are wholly unprepared for the kind of measures that you have to take today to stay ahead of the great monetary debasement train that is making its way down the tracks.

Yes, you really have to change the way you think about money to avoid outliving your pile of money. Despite what the government tells you, money doesn't maintain its value like it did fifty years ago and you can't live off of interest earned on bonds and CDs like your grandparents did. That is, unless your pile is really, really big.

Also, remember that if you are anywhere near our age, you are much closer to the end of the social security line than you are to the beginning. Unfortunately, most people don't have an option here as something like two-thirds of senior citizens count social security as their only source of income - they'll take what the government gives them and, if necessary, they'll work at the local Wal-Mart until they drop dead to make ends meet. Don't let that happen to you.

Step number one is a prerequisite to step number three and even then step number three can be very difficult.

That's what I spend most of my time thinking about lately - step number three.

So far so good.

Unfortunately most people aren't going to make it past step 1.

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