DEVELOPING A PLAN TO MAKE YOUR GOLDEN YEARS BRIGHTER.

retire rich

YOU'RE READY. YOU'VE FINALLY COME TO THE realization that if you don't get started now, retirement may just become an illusion. And the earlier that you get on track the better--especially if you have thoughts of being one of the few who can retire early and truly enjoy it.

BE is here to tell you one simple fact of life: It's not too late. Whether you have just settled into your first job or are easing into your middle years, we provide a formula that will help you achieve your goal. On the following 17 pages, starting with this article, we show you how to figure out how much money you'll need for retirement, provide the basics on investing in the tax-deferred vehicles that will help you achieve that goal, help you map out an early retirement plan, and identify long-term care insurance, what it is and whether or not you need it.

* Yes, you can retire rich. First, you have to realize that retirement planning is, in essence, a numbers game. For example, if you think you'll need $60,000 per year for a comfortable retirement, you may believe that you can count on $25,000 per year from various sources--say, Social Security, a pension, or rental income from investment property--and another $35,000 per year from your investment portfolio.

But now the calculations get complicated. How much do you need to accumulate so that you can make your $60,000 nut each year without running out of money? Once you have arrived at that number, how much do you need to invest each year to get there? That depends on the return you project from your investments, which, in turn, requires you to figure out the right mix of stocks, bonds, and cash. Finally, you need to factor in inflation. You'll need to project what the rate of inflation will be when you retire so that you can maintain your lifestyle. But who knows what rate of inflation to project?

There are a few approaches to the retirement problem. First, we suggest that you read the BLACK ENTERPRISE Wealth Building Kit (877-WEALTHY), which will help you figure out how to meet your retirement financing needs. (In this article, we provide you with the BE Retirement Planning Worksheet.)

There are several methods you can employ to identify the figure you'll need to retire rich. You can engage in the following:

* Work with a professional advisor. Most advisors have software programs to determine how much you should be investing for retirement and how your money should be allocated. Make sure you retain a financial planner who has solid credentials, who develops a formal investment strategy with you before trying to sell you anything, and agrees to meet with you at least once a year to monitor your progress.

* Do it yourself. You can buy software programs such as Quicken and work through the numbers yourself. (Indeed, many advisors use Quicken.) Alternatively, you can go online. Mutual fund companies such as Vanguard (www.vanguard.com) and T. Rowe Price (www.trowe price.com) provide free programs you can use to do your own calculations; alternatively, you can work up the numbers at Websites such as www.financial engines.com. (You can also use the calculators at www.black enterprise.com to determine where you stand.)

* Use shortcuts. A few back-of-the-envelope techniques may prove useful if you'd rather not do all that math. They include:

* The sum-of-the-years method. Here, you simply multiply the amount you'd like to spend in retirement each year by the number of years you expect to be retired. Say you'll need $35,000 per year from your investment portfolio, as described earlier. If you retire at age 60 and expect to live until age 90, that's an expected retirement of 30 years. Multiply 30 [years] by $35,000 and you'll get an investment target of just over $1 million.

If you want to maintain your lifestyle in retirement, your spending will have to increase each year to keep pace with inflation. Even at a modest 3% inflation rate, you'll need to spend almost $85,000, in 2030, to buy what $35,000 purchases today.

However, your investment portfolio will be earning money, too, providing an offset to inflation. Thus, this method can serve as a rough rule of thumb for setting a target for the size of your nest egg.

* The 5% solution. Some advisors urge investors to plan on tapping their retirement fund with a 5% withdrawal in the first year of retirement. With a $1 million portfolio, for example, you'd start retirement with a $50,000 withdrawal. Then, you can increase that amount each year to keep pace with inflation. If inflation is 3%, you'd withdraw $51,500 in Year 2, and so on. Based on the results from financial markets in recent decades, this technique makes it probable that you won't run out of money over a 30-year retirement.

* The "700% Solution." Certified financial planner Richard E. Vodra of Legacy Advisors in McLean, Virginia, likes this idea so much that he trademarked it. "Generally, people have to work toward saving an amount equal to seven times their income for retirement," he says. "Some of the techniques used for retirement rely too much on projections far into the future. Who knows what will happen in the next 30 years? Who even knows what currency we'll be using? Who would have thought, 30 years ago, that the Germans and French would be using something called the euro?"

Instead of making uncertain projections, Vodra advocates his "700% Solution," which he has found works for most clients.

* The Retirement Palette. Another financial planner who has come up with an innovative approach to retirement planning is Mike Martin of Financial Advantage in Columbia, Maryland. "I have found that most people, even those who are well educated, are not comfortable with all the calculations financial advisors use in retirement planning," he says. "When I talk to clients about the historic variability of market returns, I get blank stares."

On the other hand, people tend to absorb information if it's presented visually. Therefore, Martin created what he calls "The Retirement Palette" to help people understand the process and decide upon an appropriate asset allocation.

For this palette, Martin lists a number of factors: life expectancy, years to retirement, desirable rates of return, risk tolerance, and so on. For each of these factors, answers must be entered in various columns.

Each column, in turn, is headed by a color: red, orange, yellow, green, and blue. Answers under the red column indicate that a high allocation toward stocks is desirable: a long life expectancy, for example, or many years to retirement. Across the form, answers in the blue column suggest fewer stocks or more bonds: low risk tolerance, for example, or a retirement fund that's already so large there's no need to load up on stocks.

Each answer is shaded in the appropriate color so that Martin's clients can quickly see the pattern that emerges. A client whose answers are all shaded red, with a few oranges and yellows, would be well served by an allocation heavily tilted (75% or more) toward stocks. Another client, with answers shaded in all hues, might be a middle-of-the-roader (yellow), instead, with a 35% to 55% allocation to stocks.

Once you have a true picture of your retirement needs, you can use art as well as science to design a personal road map.

These are a few methods that you can use to determine your retirement financing needs. The most important bit of advice: Get started now.

B.E. Retirement Planning Worksheet

Find out where your stand:                                example

 1   Current annual income
     (you and your spouse combined)                       $80,000

 2   Desired retirement income                            $60,000

 3   Estimated Social Security and pension
     income                                               $20,000

 4   Income needed from personal savings:
     Subtract (3) from (2) (includes tax-deferred
     plans and portfolio investments)                     $40,000

 5   Desired retirement age (Make note of the
     income multiple that fits your wishes.)

     Retirement Age    50-54   55-59   60-64   65+
     Income Multiple   26      23      20      17

     (For our model, we'll use 20.)

 6   Necessary personal savings:
     Multiply (5) by (4)                                 $800,000

     Number (6) is your retirement savings goal.

Now, determine how to get there:

 7   Total personal savings now (IRA, annuities,
     insurance policies, etc.)                           $250,000

 8   Approximate years until retirement

     Years To Retirement   8   12   16   20   24
     Growth Multiple       2    3    4    5    6

     (We'll use 8 for a multiple of 2
     in our model.)

 9   Estimated value of current personal savings
     at retirement: Multiply (8) by (7)                  $500,000

10   Savings shortfall: Subtract (9) from (6)            $300,000

11   Approximate years until retirement

     Years To
       Retirement      8      12     16     20     24
     Savings Factor   .100   .070   .045   .032   .025

     (We'll assume 8--a factor of .100
     in our model.)                                          .100

12   Annual savings necessary:
     Multiply (11) by (10)                                $30,000

Find out where your stand:                               yours

 1   Current annual income
     (you and your spouse combined)                       --

 2   Desired retirement income                            --

 3   Estimated Social Security and pension
     income                                               --

 4   Income needed from personal savings:
     Subtract (3) from (2) (includes tax-deferred
     plans and portfolio investments)                     --

 5   Desired retirement age (Make note of the
     income multiple that fits your wishes.)

     Retirement Age    50-54   55-59   60-64   65+
     Income Multiple   26      23      20      17

     (For our model, we'll use 20.)

 6   Necessary personal savings:
     Multiply (5) by (4)                                  --

     Number (6) is your retirement savings goal.

Now, determine how to get there:

 7   Total personal savings now (IRA, annuities,
     insurance policies, etc.)                            --

 8   Approximate years until retirement

     Years To Retirement   8   12   16   20   24
     Growth Multiple       2    3    4    5    6

     (We'll use 8 for a multiple of 2
     in our model.)

 9   Estimated value of current personal savings
     at retirement: Multiply (8) by (7)                   --

10   Savings shortfall: Subtract (9) from (6)             --

11   Approximate years until retirement

     Years To
       Retirement      8      12     16     20     24
     Savings Factor   .100   .070   .045   .032   .025

     (We'll assume 8--a factor of .100
     in our model.)                                       --

12   Annual savings necessary:
     Multiply (11) by (10)                                --

Source: Black Enterprise Wealth Building Guide