Most Americans are not ready for retirement. Many of us will go broke during old age or find ourselves working until the grave. Let's be clear: You have to be prepared. The government has borrowed its way into a hole from which it may never emerge, and Social Security is dying. So, whether or not our Titanic is actually sinking, it doesn't hurt to ensure that you have a good life raft.

Planning for retirement is simple. You can think of it in three pieces: your Social Security benefits, your pension and your retirement savings. You don't have to save enough money to pay all of your bills, but you should ensure that you have enough saved to compensate for the difference between your financial needs and those being fulfilled by Social Security and pension plans.

Here are some things you can do to both prepare for retirement and ensure that you have enough:

1) Remember that you are going to live for a while after you stop working. As modern medicine finds more and more ways to keep us alive, we are going to live longer. What's also true is that your life expectancy after you reach 65 is going to be higher than it was when you were born, mainly because you're one of the people who made it that far. Therefore, your retirement may last 20 or 30 years, which means you have to have enough money to make it that far.

2) Pay off as many bills as you can before you retire. When you retire, you should try to make sure your home and car are both paid off. In fact, I recommend getting rid of almost all of your debt. This will keep your monthly expenses low and ensure that you at least have access to the basic essentials: food, shelter and transportation.

3) Start saving early if you can. A person who starts saving $10,000 per year in a 401(k) at the age of 22, earning 8 percent per year in interest, will have roughly $3.2 million in their retirement account by the age of 65. A person who waits just 10 years and starts saving the same amount at the age of 32 is going to have less than half that amount. Getting an early start is critical when planning for retirement.

4) Don't forget inflation. Remember that $50,000 per year might seem like a decent living now, but if you retire today and live for another 15 years, that same $50K won't go so far. So, when you set up your retirement savings plan, make sure that you account for the fact that you are going to want your monthly income to grow by about 3 to 4 percent per year to keep up with the pace of inflation. Your financial planner can help you factor inflation in your estimates.

5) Don't forget the medication. One thing that stinks about getting old is that your body starts to break down. Eventually, your medicine cabinet starts to look like a pharmacy. These drugs are expensive, and pharmaceutical companies could honestly care less if you are able to afford your medication or not. Be sure to budget in the cost of additional medical care as you get older to ensure that this doesn't bust your budget.

Remember: Most Americans are not prepared for retirement. So, to be sufficiently prepared, you should not do what your neighbors are doing, you should expect to do something different. Start saving right now, so you can be happy and independent during your golden years.


Dr. Boyce Watkins is a finance professor at Syracuse University and author of the book 'Financial Lovemaking 101: Merging Assets with Your Partner in Ways that Feel Good.' To have Dr. Boyce's commentary delivered to your e-mail, please click here.