The first step you take when preparing for retirement is determining your potential retirement expenses as well as estimating the amount you might receive from each potential source of retirement income (Social Security, pensions, personal investments, and employment earnings). This should give you an idea of how much money you might need for a comfortable retirement. Start investing early!
Next, determine an appropriate asset allocation (how you divide your money among stocks, bonds, and cash in your portfolio). This should be based on your financial goals, tolerance for investment risk, and time horizon. You should also remember to review your retirement portfolio each year and rebalance your asset allocation if necessary.
Consider your health insurance options and out-of-pocket medical expenses and account for them financially in your retirement budget.
Determining an appropriate annual withdrawal rate of your assets during retirement is essential to be sure that you do not outlive your funds. Help reduce your tax burden by preparing ahead of time and know which IRAs or employer sponsored retirement plans give you the greatest tax advantage.
The last step toward a prosperous retirement is to develop an estate plan. This is the plan the reduces your taxable estate and passes more on to your hears while also benefiting you. Some estate planning tools include trusts, or a gifting strategy.