Do a cash flow analysis

A comfortable retirement is largely a function of wants, needs and how much money stands between the two.

Surprisingly, less than half of workers — 47 percent — say they or their spouse have tried to calculate how much money they will need for a comfortable retirement, according to the Employee Benefit Research Institute’s 2008 Retirement Confidence Survey.

As a rule of thumb, some experts say that you can expect to live on 80 percent of your preretirement income. But if you want to live more extravagantly, you’ll need more. So your first step is to figure out how much money you’ll need each month to pay your expenses.

The purpose of doing a cash flow analysis is to give you that baseline of how much money you need, says Julie Jason, author of The AARP Retirement Survival Guide.

If you don’t have a baseline there’s no way you can make rational decisions.

For example, suppose you receive $5,000 per month between your 401(k) plan and Social Security, but your expenditures amount to $6,000 a month.

You’ll need to either cut back or come up with another $1,000 per month for that spending plan to work. If you must tap investment assets for the difference, you’d better make sure you have enough to last you for many years at that level.

Jason cautions that a baseline cash flow analysis is just that — a baseline. There needs to be some flexibility built in to take into account the prevailing economic backdrop as well as life changes that spring up. Plus you’ll have to factor in inflation.

You’re always assessing and reassessing, she says. I think that’s the most important message about doing cash flow analysis.

Delay retirement

Most people will probably tell you that they would like to retire earlier, not later. But people are retiring later due to economic and other factors.

The median retirement age for retirees increased from age 59 in 1991 to age 62 by 2003, according to a 2009 survey by the Employee Benefit Research Institute.

The upside of working into retirement is that you have more time to build up your retirement accounts and take advantage of company-sponsored medical plans. But be mindful of how collecting a paycheck may affect other things.

If you have less than $200,000 in savings, you may want to consider postponing retirement for awhile because it’s likely that you won’t be able to generate enough income to cover inflation for a 30-year retirement even with 6 percent after-tax returns each year, Jason writes in her book.

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Rebalance your portfolio

Experts recommend that your investment accounts be reviewed periodically for increased return potential, and if necessary, your portfolio should be rebalanced. Rebalancing can help you match your investments with your original goals or accommodate your changing needs.

The downside, of course, is that increased return potential comes with the risk of more volatility, so you need to have a handle on how much risk you are willing to accept.