Why do I get the feeling that the government is trying to ‘ignore’ some issues that will spell a catastrophic doom to millions of Americans if nothing is done about it right now. Lets face it, the Social Security is in serious trouble, but no one seems to want to come near that topic, leave alone touch it. I understand that everyone is concentrating on how to get jobs to millions of Americans who are looking for a regular paycheck, but I thought we said that one lesson we have learnt from all this financial crisis, is that we should avoid another financial meltdown. Well, Social Security is a financial disaster waiting to happen. Robert Powell discusses in the following article, some other issues, apart from Social Security, that are plaguing Retirement in America.

President Barack Obama, in his State of the Union speech, didn’t really touch on the subject near and dear to the hearts of millions of Americans — the State of Retirement in the U.S.

No doubt he had other pressing matters to address. So allow us the pleasure of issuing — thanks in large part to a many experts on the topic — our State of Retirement column.

In short: Things are bad and, in the absence of action or in the presence of the ill-advised action, could get much worse.

“I think the state of retirement in America is endangered as the ‘Great Recession’ has taken a toll on the financial status of many and as retirement savings were not adequate for many prior to the ‘Great Recession,’” said Matthew Greenwald, the president of Matthew Greenwald & Associates, a leading retirement research firm. “There are several things that need to be fixed, including addressing Social Security and helping people feel confident in the viability of the system, more effective defined-contribution plans that do a better job of encouraging participants to defer more of their income and more effective advice to retirees that helps them use their financial assets most effectively when they retire.”

Others are in the same camp. “There are many challenges,” said Anna Rappaport, the president of Anna Rappaport Consulting and chair of the Society of Actuary’s Committee on Post-Retirement Needs and Risks. But Rappaport also said there’s a lot of opportunity to fix those challenges.

Here’s a look at the challenges and some ways to respond.

Social Security

The combined Social Security trust funds will be exhausted in 2036 and at that point there will only be enough income coming in to pay for 77% of scheduled benefits.

Now 24 years might seem like plenty of time to fix that problem but there doesn’t seem to be the political will to do so. Elected officials are seemingly afraid to tackle the issue; they would rather a greater fool put their bid to be re-elected at risk than address an issue that will affect some 78.1 million Americans a generation from now, which we should note is twice the number of Americans age 65 and older today.

But the truth of the matter is that it’s time that President Obama (or someone) take a page from President Ronald Reagan’s book when, in 1981, he established a commission led by Alan Greenspan to reform Social Security.

Some two years later, as a result of that commission’s work, amendments to Social Security included a provision for raising the full retirement age from age 65 to 67, phased in over time. At the time, the Congress cited improvements in the health of older people and increases in average life expectancy as primary reasons for increasing the normal retirement age.

Given the current and predicted future state of Social Security, it’s time to once again raise the full retirement age, according to Bob Reynolds, the president and CEO of Putnam Investments. This time, Reynolds suggests, we might peg the full retirement age to life expectancy so as to adjust for improvements in the health of older people and increases in average life expectancy.

In 1940, for instance, the average 65-year-old male in the U.S. had a life expectancy of 77.7. In 1990, it was 80.3. And by 2006, it was 81.6. “You have to adjust for that,” Reynolds said. “It’s just too costly.”

FYI: Using 1940 as the benchmark ratio, the full retirement age could be raised, by my calculations, to 70¾.

Of course, you would phase the increase in over a period of time so that people have time to prepare for it, Reynolds said. And you might leave the full retirement age for people over age 55 as is, while adjusting it upward for those under age 55.

Reynolds also favors increasing the amount of earnings subject to taxation for a given year. For 2012, the annual limit, the contribution and benefit base for Social Security, is $110,100. He suggests that the contribution and benefit base be increased to “somewhere around” $150,000. “That would provide the base for a stable system long-term,” Reynolds said. He noted, for instance that there’s no limit on the amount one’s taxed to pay for Medicare.

What’s more, Reynolds is in favor of examining a needs-based system that would reduce one’s Social Security benefit one based on income or assets. “It’s something that should be looked at,” he said.

Others also see the need to shore up Social Security. For instance, Cynthia Egan, president of T. Rowe Price Retirement Plan Services, said: “Lower income earners, those who are not covered by a defined contribution plan, as well as ‘weak savers’ are going to be highly reliant on Social Security. It is what it is. So we must ensure the stability and reliability of the Social Security program for the future.”

Contribution rates

On average, workers — at least those who have such a plan — contribute about 7% of their compensation into their 401(k) plan and that, many experts say, is too low. According to Reynolds, one would need to save at least 10% to replace, when combined with Social Security benefits, 80% of one’s final pay in retirement. Others say contributions rates have to be even higher the longer one waits to save and the less one has socked away.

Maybe the time has come to put in place plans that would automatically escalate the amount one contributes to a 401(k) to a minimum of 10%, not just the 3% which is the norm. Others agreed. “People need to save more — and we need to figure out how to make that happen,” Rappaport said.

To be fair, not all experts are worried about contribution rates or the shortcomings of 401(k) plans.

For instance, Kevin Crain, head of Institutional Retirement & Benefit Services for Bank of America Merrill Lynch, offered the following: “We believe that privately sponsored corporate retirement systems are structured to be successful, and can be even more successful with employer’s continued focus on enhancements to their financial benefit plans and services. More specifically, within 401(k)s, we continue to see significant increases in employee engagement and utilization of these plans through such tools as auto enrollment and advice services.”

And Linda Wolohan, a spokeswoman for the Vanguard Group, said: “The U.S. retirement system, while rocked like any investment-based program during the severe market downturn of a few years ago, has shown great resilience.”

For instance, she noted that retirement wealth for the typical 401(k) plan participant grew over the past five years even in the face of the substantial market and economic shocks. What’s more, she said, while account balances have sometimes been cited as too low to be helpful in retirement, it’s important to note that the typical participant is a 46-year-old male who is saving 8.8%, with 20 to 25 more years to work and grow his account. “His retirement plan assets will be complemented by Social Security benefits and other savings, perhaps assets in other employer plans or a spouse’s plan, or personal savings,” she said. “Even though we always encourage people to save more — ideally at least 12% to 15% of their income — the reality is that more participants than you think may be on target for retirement.”

Coverage

Another issue plaguing the U.S. today is this: Just half of the 150 million or so working Americans have an employer-sponsored retirement plan at work. And the 75 million workers who don’t have a retirement plan at work aren’t saving anything at all for their golden years. But studies suggest that those workers might save if they did have a plan at work. So, Reynolds is in favor of creating what’s been called a universal, or automatic, IRA.

According to the Heritage Foundation, universal or automatic IRAs would provide a relatively simple, cost-effective way to increase retirement security for the millions of workers without plan coverage. The universal or automatic IRA, said the Heritage Foundation, is a way that employees of smaller businesses can choose to save for retirement by allowing their employers regularly transfer an amount from their paycheck to an IRA.

For her part, Egan said there’s no need for another retirement plan, just incentives. “Small employers should be offered incentives to provide coverage,” she said. “We don’t need another vehicle. There are many, many providers who support small- and micro-plan services. We simply need to incent the smaller employer to make it happen and keep it simple for them.”

By the way, one big risk looming is the possibility that those folks who did the right thing and saved for retirement, might end up paying in one way or another for those who didn’t.

Literacy and confidence

Sometime in March, the Employee Benefit Research Institute will release the 22nd annual Retirement Confidence Survey and will likely show that only a few Americans are very confident about having enough money for retirement. In 2011, just 13% were very confident.

Reynolds suggests that there’s a correlation between financial literacy and confidence. To solve the confidence problem, we must solve the literacy problem. According to Reynolds, it’s time to provide the education and tools required to help people understand how much to save and how to invest, how much they will need to accumulate for retirement, and how to make their money last a lifetime once in retirement. Knowledge will lead to action, and action will lead to confidence.

Others agree. “Financial literacy and awareness are key components in helping Americans prepare for retirement,” said Suzanna de Baca, the vice president of wealth strategies at Ameriprise Financial. “Any American looking ahead to retirement can benefit from a written financial plan that will help them define their retirement goals and objectives, and guide them in creating a realistic plan to create a more confident financial future.”

Rachel McTague, a spokeswoman for the Investment Company Institute (ICI), also said education is needed. “ICI research finds that the system of saving for retirement in 401(k) plans and IRAs is a success, based on such survey data and modeling of potential savings over a full career with 401(k) plans,” she said. “Nonetheless, we believe there is room for improvement. Among other priorities, we support efforts to provide retirement savers with information and tools to help them use the system to accumulate assets and understand and navigate the distribution phase as well.”

In the absence of such education and planning, however, there are those who say policies that force people to save on their own for retirement hurt more than help. “Too much responsibility has been shifted to individuals, and they are not well prepared to handle them,” said Rappaport. “Financial literacy creates major challenges and we need systems that work without people having initiative.”

Outliving one’s assets

Right now, there’s much ado about outliving one’s assets. Experts are worried that average Americans don’t understand longevity risk and might draw down their assets too quickly during retirement. According to experts, many Americans should consider adding investments that insure against the risk of outliving one’s assets. But that’s unlikely to happen anytime soon. Most Americans are distrustful of such products. Nonetheless, it’s worth adding this opinion to the mix.

“Striking the right balance between growth and income to keep from outliving one’s retirement savings is an even more daunting task than it was before the current period of market volatility and low interest rates,” said Chris Winans, a spokesman for AXA Equitable. “The problem is that 401(k)s and plain-vanilla savings accounts without downside protection are exposed to the vagaries of the market. You wouldn’t think of not spending whatever it costs to insure from losing your house in a fire. Why wouldn’t you want protection on a portion of your retirement nest egg, too? Our challenge is to help people understand this value for themselves and their families. You hope your savings appreciate and nothing bad happens, but a lifetime income guarantee reduces some of the risk. That’s worth something.”

Tax breaks and retirement

Efforts to eliminate the so-called tax breaks Americans get for saving money in a 401(k) or other plans where they can to save on a pre-tax basis could affect adversely the state of retirement in the U.S.

According to Reynolds, 401(k) plans and the like are not tax breaks. Rather they are tax-deferred plans. At some point in the future, Americans will pay ordinary income taxes on the money distributed from those plans. Efforts to eliminate or reduce incentives to save might backfire and reduce further the poor state of retirement in the U.S., not improve it.

Egan is of the same opinion. “Tax incentives must be preserved for retirement savings,” she said. “Our defined contribution system reflects ‘the American way.’ There’s a balance among government endorsement and oversight, corporate and plan sponsor fiduciary responsibility, individual responsibility, and free market competition among service providers.”

The good news — sort of

“As more and more baby boomers retire, the discussion on retirement, on retirement income, will become a national topic,” said Reynolds. “And I think it will spark the interest of retirement to all age groups.”

Let’s hope that’s the case because the problem is real. “America is facing an unprecedented retirement challenge as the U.S. population undergoes a radical demographic shift,” said Michael Falcon, head of retirement at J.P. Morgan Asset Management. “Twenty percent of the population will be over 65 years old by 2020 and, despite impressive aggregate asset growth, many Americans are still significantly short of the savings they will need for a dignified retirement and are unprepared for the complex financial choices they will need to make.”

Be honest with yourself, are you the kind of person that does something because others are doing it ? A large percentage of the population will perform a task because everybody in their company is doing it or because the guy on TV said so. Take for example a sensitive issue like retirement, many people contribute to their retirement fund because it is a company requirement, but if people were given the choice, well I’m sure you have an idea of what would happen. Fine, peer pressure has a positive effect if it can lead people to make a worthwhile contribution in their lives, but my main concern is, where is the commitment? While on the issue of retirement, contributing to your retirement is not something that you are going to make in a few months to accumulate enough funds to sustain the lifestyle you desire in your sunset year, it might take half your life time before you achieve that goal. Te question is, How long can somebody sustain such kind of contribution if there is no commitment on their part? Jen Wieczner, in the following article,  tries to answer this question on whether peer pressure will make Americans save more.

Lose weight. Run a marathon. (Okay, a half-marathon.) And — oh, yeah — sock away a little more in the 401(k) plan. Improving one’s financial habits may not top everybody’s list of New Year’s resolutions, but recent studies suggest that some tactics people use to follow through on their intentions — especially relying on different types of peer pressure — can also help them with their money habits. The only problem: They can also backfire.

Whether practiced in group-support settings like Alcoholics Anonymous or in a more public forum (thanks, reality TV), peer pressure has long proved effective in getting people to modify their behavior. Now researchers are applying it more often to money issues, and not just in the U.S. In a 2010 study by American and Chilean researchers, a group of entrepreneurs began meeting regularly to set weekly savings targets, discuss their goals and confess their missteps. Over the course of a year, the group averaged a monthly savings of 11 percent of their income — putting away twice as much money as a control group that didn’t have the meetings. “It’s the concept of keeping up with the Joneses turned on its head,” says Frank Murtha, a psychologist and founder of the behavioral-finance consultancy MarketPsych.

Peer pressure on a larger scale is trickier, of course, but experts say applying what could be called The Biggest Loser effect may help. That’s when a combination of support and shame, and the desire to conform to social norms, persuades people to publicly set a goal and then achieve it. Applying similar principles, the British government recently altered some letters to delinquent taxpayers to include a message urging them to join the 94 percent of their fellow citizens who had paid their taxes. As a result, 70 percent more people either paid or renegotiated payment on their bill, yielding $400 million in recoupments.
But in the world of money, peer pressure can have an equally powerful negative impact — just ask anyone who’s spent too much on a fancy meal with friends or invested in the dot-com bubble. Even when pressure is applied in the right direction, there is often a boomerang effect, as people do the exact opposite of what is encouraged. When unionized employees in one study were told that most of their colleagues were contributing to a company 401(k) plan, they actually saved less than workers who didn’t get the same information. “These peer effects can backfire,” says Brigitte Madrian, an economist and Harvard professor who worked on the study. The effectiveness of pressure may also depend on whether the goals are realistically within reach, Madrian adds; while people can always afford to stop smoking, they aren’t always flush enough to put away a chunk for retirement. Says Ron Shevlin, a senior analyst at research firm Aite Group, “The jury is still out on whether or not this truly works.”

But some analysts and companies think using pressure effectively is just a matter of tinkering with the formula and that if you know what other people are doing, you’ll adjust accordingly. ING’s CompareMe tool, which has had more than a million visitors since it launched in 2009, allows people to plug-in factors like age, income and hobbies and see how they stack up in terms of retirement savings, credit card debt and student loans. When ING provided similar comparison data to a survey group of 28,000 people in several companies’ retirement plans, 16 percent of users increased their contribution rate. Bundle.com, a personal finance website backed by Citigroup, uses anonymized data from Citi’s credit card transactions to show people similar benchmarks for expenditures. “If I find a good bunch of people who are spending a whole lot less than I am on groceries maybe I’m making a mistake,” says the site’s founder, Jaidev Shergill.

Technology may make these kinds of tactics more prevalent in the future, experts say, as apps allow people to compare themselves with their peers on the go and nudge them to think twice about a big-ticket purchase. Says Murtha, “Maybe we can get Matt Damon to record a PSA.”

Being young is one stage in life where you think that things will remain that way for eternity, only for you to get a wake up call when it’s too late. During this period, it is usually the best time to start getting your life on the right footing, especially financially. Most young people wait until it’s too late to start coming up with a financial plan, and most end up setting unrealistic goals just to achieve their financial goals. This is also the best time to start saving on your retirement, even though it seems like a million years away. The beauty of starting to save when you are young is that you can start with a small amount, and work your way up. As Mark Miller explains in the following article, there are six retirement moves for the young that will ensure that a young person saves enough for retirement.

Consider part-time or seasonal employment.

Unemployment is one of the biggest headaches of this administration, and by the way things are going in the global arena, it will take a while before we can witness the employment levels before the financial crisis began. Millions of people are struggling to make ends meet, but it is harder for anyone who was about to retire and had this plan on how to manage their funds once they retire. Then all over a sudden, millions of would-be retirees were without employment and were forced to go back to the drawing board. We all have been forced to go back to our financial plans and reorganize those plans to reflect the current economic conditions, but this is not easy for someone who was about to retire. Making adjustments to your financial plan in your 50′s or 60′s is not easy, and your may forced to undertake  moves that are supposed to keep you afloat in this tough economic environment. The following article by Tara Siegel Bernard gives examples of how to go about achieving this goal even after being laid off from your job that will keep your head afloat.

Achieving financial security in retirement is hard enough for most working Americans. But for those who lost their jobs just as the finish line was within sight, the whole notion may now seem out of reach.

Older unemployed people face the double whammy of declining home values and an investment portfolio that has been treading water, at best. But they have also lost the one stabilizing factor that was supposed to see them through: a paycheck.

That has forced many of these people — and there are nearly two million of them over age 55 — to make tough decisions about how to make up for the lost income, especially since it is taking them substantially longer than their younger peers to find work. In December, the average time someone 55 or older was unemployed was 52.2 weeks, according to the Labor Department; more than 210,000 others have simply quit looking.

Being unemployed for a year is enough to burn through even the richest of emergency savings funds. So if you have lost your job, the first step, as one financial planner put it, is to do financial triage. You need to look at your cash flow, figure out how much you have been spending and decide the minimum you absolutely need to get by.

“You cut as much as you can, and if you still come up short $500 a month, then you have to figure out the best place to get that money,” said Dan Danford, a financial planner in St. Joseph, Mo.

It may mean that you need to consider taking your pension a bit early, or finding a part-time job. But there are several other little-known tricks that will help you create a bridge of sorts until you either find work or manage to eke your way to retirement.

REASSESS CAREER POSSIBILITIES

Though easier in theory than practice, you may consider a second career in an area that you enjoy, perhaps on a part-time basis, through much of your retirement. “It is not very often that we are forced to evaluate our career and to determine if we really want our old job back,” said Alan Moore, a financial planner in Racine, Wis.

He suggests thinking about it this way: Even if you earn only $500 a month working part time in retirement, it’s equivalent to having another $150,000 in the bank, assuming that you pull out 4 percent of that money annually, an industry standard. “Plus, it is much easier to earn $500 a month than save an additional $150,000,” he said, adding that he advises his clients to work with a career coach.

Joshua Gottfried, a financial planner in Glastonbury, Conn., worked with a client who had lost his job as a plant manager. Without his income, Mr. Gottfried calculated, his savings would need to earn an unrealistic 8 or 9 percent return to meet his retirement goals. So he and his wife decided to take 15 percent of their savings to start a construction company. “If he can make 15 to 20 percent on the money he put in the business, and he can make 5 or 6 percent on his passive investments, then it will net out,” Mr. Gottfried said.

SOCIAL SECURITY

For many healthy people, it is almost always worth waiting until your “full retirement age,” at the very least, to begin collecting Social Security. But for those with few or no resources, collecting sooner may be the only option. There are a couple of workarounds, however, that may allow you to collect benefits on a spouse’s record, while your own benefits continue to accrue.

That is what Barbara Saltsman, 64, learned after she lost her job as a legal secretary in June. She had planned to work until she was 66, and while she has continued to scour the Web for new jobs, she hasn’t been able to find anything that pays close to her old salary.

“I have 40-something years of experience, and companies don’t want to pay for it,” said Ms. Saltsman, who lives in Chittenango, in upstate New York.

Unemployment benefits were not enough to keep her finances afloat. So she thought she would have to take Social Security two years before her full retirement age, which would have substantially reduced her benefits. But when she visited her local Social Security office, the representative suggested collecting benefits on her deceased husband’s record until she turned 70, when she could switch to her own benefits and collect more.

Some individuals may also benefit from the “file and suspend” strategy, which allows one spouse to file for benefits and then immediately suspend them. Then, the unemployed spouse can collect spousal benefits on the working spouse’s record while his or her own benefits continue to accrue. But this works only if both spouses have reached full retirement age.

TAPPING RETIREMENT SAVINGS

You typically cannot pull money out of a company plan like a 401(k), or a traditional I.R.A., until six months after your 59th birthday. Otherwise, you will face a 10 percent penalty on the amount withdrawn.

You obviously want to avoid withdrawing money prematurely. Several financial planners suggest pulling from emergency savings if you have it or other taxable accounts before resorting to retirement accounts. But if you absolutely must tap these funds, some of these methods will help reduce the damage.

DO NOT ROLL OVER YOUR 401(K)

If you were laid off the year you turned 55 or older, you should think twice about rolling over your 401(k) or 403(b) into an I.R.A. You can withdraw money from the account penalty-free (though you will have to pay income taxes), whereas you would have to wait until you turned 59 1/2 to use those funds in an I.R.A. This rule does not apply to people who left their employer, say, at age 54, and who want to pull money out at 55.

TAP YOUR ROTH I.R.A.

You can pull out all of your Roth contributions — but not the earnings — at any time and for any reason, free of tax and penalty. (If you converted a traditional I.R.A. to a Roth, that money could be pulled out, too, as long as it had been in the account for at least five years; each batch of money converted starts a new five-year period.)

PAY FOR HEALTH INSURANCE

If you are out of work, you can also take an early, penalty-free distribution from your company plan, like a 401(k) or I.R.A., to pay your health insurance premiums. To qualify, you need to have received, or be receiving, state or federal unemployment benefits for 12 consecutive weeks, according to Ed Slott, an I.R.A. expert and the author of “The Retirement Savings Time Bomb … and How to Defuse It” (Penguin, 2003), though self-employed people are also eligible. Another caveat: You need to pay for your insurance during the year you received unemployment benefits or the year after.

In fact, paying for health insurance before you are eligible for Medicare is probably one of the biggest challenges of joblessness. Mr. Gottfried suggested looking at high-deductible plans used in conjunction with a health savings account, which allows you to set aside money tax-free that can then be used for medical expenses and premiums.

“That might tide you over, especially when most of those H.S.A.’s will allow a transfer from a traditional I.R.A.,” he added. “Or, if you put money into an H.S.A., you receive a deduction.”

ANNUITIZE YOUR I.R.A. OR 401(K)

A tax break known as the 72(t) rule will also allow you to withdraw money without penalty from a 401(k) or traditional I.R.A. Using this method, you must withdraw a “series of substantially equal periodic payments” over a five-year period or until you reach age 59 1/2, whichever is longer. The payout is determined by your life expectancy or the joint life expectancy of you and your beneficiary. But you cannot change the payment schedule — otherwise, you will have to pay the 10 percent penalty.

Do not, I repeat do not, rush into this decision without professional guidance. Not only do you run the risk of seriously depleting your I.R.A., but if you find a job and no longer need the money, there is no turning back.

“Once you take the payments, you can’t roll them over back into your I.R.A.,” Mr. Slott said. Nor can you convert that money to a Roth account. “You are stuck with it.”

Financial planners offered many more ideas, from borrowing money from a spouse’s 401(k) to refinancing a home and taking some cash out (if you have the equity), as well as bartering or taking over day care duties for the grandchildren. And several planners suggested that they expected to see more families moving in together.

Whatever you decide, think long and hard about the consequences and how the decision may affect your long-term savings.

“At 55, there are 15 to 20 more years left to get back into work,” said Joseph R. Birkofer, a financial planner in Houston. “It may take a while, but there really isn’t another choice.”

Let’s be honest, we have all thought of retiring early at least once. The idea of living your retirement life when you are still in your 50′s or even 40′s seems unimaginable to most of us. The reality is that it is possible, but only through hard work and having clear goals on what you want to attain. Most of us fail to achieve this target because of a number of reasons, for instance, your perception, falling off the bandwagon while you are halfway through the journey, unexpected events in one’s life etc. The secret of achieving any goal you set your mind on, is staying focused on the prize, unexpected events will come your way that will distract you for a moment, but always remember the goal you set for yourself, and if you do, you’ll surely be victorious . The following article by Susan Johnston illustrates a couple who retired in their mid-40′s, and what made their goal a reality.

At 31, Robert Charlton had grown disillusioned with his job as a technical writer. “The idea of doing a desk job for another 30 years seemed painful to me, so I came up with this idea of trying to retire before 45,” he says. He shared the idea with his wife Robin, who was then 31 and working as a travel agent.

Robert read up on personal finance instead of hiring an adviser and looked at taxable accounts they could draw from before turning 60. During that period, Robin completed an accelerated nursing program to become a registered nurse. By age 43, they’d gone from $16.88 in their checkbook at age 28 to saving up enough money to leave both their jobs and live off the interest.

Now, years later, they travel the world, skydiving in New Zealand, hiking through India, sailing through the Chilean fjords, and documenting their adventures on their website, wherewebe.com. Although many people struggle to retire in their 50s or 60s, Robert believes it’s possible for others to retire early as he and his wife did. “Really, we’re very average people,” he says, admitting that it’s harder, though not impossible, for those with kids. “We never had power jobs. We just both took intelligent steps.” Here are some of those steps.

1. Cut housing costs.

The Charltons spent a year carefully tracking their spending to see where they could cut back. But as Robert says, “the truth of the matter is, we really didn’t have that much fat to cut out.” Still, they agreed to rent out half of the bi-level starter home they owned in Boulder, Colo., so they could pay off the mortgage and pad their savings. Switching from a 30-year to a 15-year mortgage also helped the couple reach their goal. “You save so much on interest that it does result in a higher monthly payment, but not as high you would think,” says Robert. They later sold their house and put the equity into a bond fund.

2. Agree on your priorities.

Instead of buying new cars, the couple kept their old ones, and Robin stuck to grocery shopping lists instead of buying whatever caught her eye. “That’s how he shopped [without sticking to the list] so he was cut off from shopping,” she says. Keeping their shared goal in mind kept their eyes on the prize. “We were both on the same page,” adds Robin. “We both knew we wanted to put the money towards experiences.” However, because they value travel so much, the Charltons didn’t completely deprive themselves while saving up for retirement. As Robert says, it’s important to “balance living for tomorrow with living for today.” If saving feels like too much of a chore, it’s easy to fall of the bandwagon.

3. Live below your means.

Now that they’ve left the workforce, the Charltons live modestly by staying in hostels and focusing on less expensive travel destinations. They estimated needing between $30,000 and $40,000 annually, and they’ve managed to stay in that range, though they’re averaging closer to $40,000. Earlier this year, they splurged on a trip to Italy and Switzerland for their 25th wedding anniversary. However, Robert says, “we typically have tried to travel places where the dollar goes further, like Argentina and Chile, where the exchange rate was in our favor.” Destinations like India and Nepal have higher airfare but low day-to-day expenses so they stay for several months at a time to balance out the airfare costs.

4. Stay in the game.

Although the Charltons’ portfolio has had its ups and downs, they’ve resisted the urge to try to time the stock market or get out altogether. “We did some of our best investing during the bear market of 2000 to 2002,” says Robert. “We bought stocks ‘on sale’ and reaped the rewards afterwards.” Although he says they could have gotten a higher return on investment if the timing had been different, they also underestimated future earnings, so that helped them reach their target more quickly than planned.

5. Don’t rule out temporary work.

Dips in the market have made it more challenging for the Charltons to live off their interest. So when Robert was offered a six-month consulting project in 2009, he jumped at the opportunity to rebuild their capital. Although he’d once dreaded going to work, he actually liked the temporary arrangement. “I genuinely enjoyed working hard during that window because I knew it wasn’t endless, which was the thing I found challenging early on when I first came up with this plan,” he says.

Robin adds that they’re open to making adjustments as they go or returning to work if needed. However, she values the chance to travel and be active while they’re young and healthy. “Working as a nurse, I realize so many people save so much and a lot of people don’t get all the years they thought they’d get,” she says.

Yet another year, and big decisions have to be made, and I bet one of those decisions is that some of us will finally call it quits on their to 9-5 jobs. Retirement planning is one of the most crucial decisions you will have to make sometime in your life. Because the quality of the life you live after this point, will depend entirely on the kind of preparations you made during the early years of your life. But all those wonderful plans can also be derailed if you do not adequately plan on how to make an exit. Becoming a retiree is not as easy as most people think, and some people go bonkers due to the drastic change their life has suddenly taken. So to avoid all those retirement blues, there are 5 things that you should do this year before you can call it quits, as Tom Lauricella elaborates in the following article.

For some, 2012 will be much more than just another year. It will be the year that, after decades of punching the clock, they’ll join the ranks of the retired. Before making that final commute to work, however, those retiring this year should make a to-do list.

There are important aspects of retirement to prepare for and steps that can make the transition smoother both financially and emotionally. Here are five things to do now.

1. Start keeping close track of your spending.

During the planning phase for retirement finances, much of the math was based on guesswork. Now is the time to get real.Start by going back over the past few months of bills and expenses to get a detailed picture of your spending and expenses. Plan on keeping close tabs on a continuing basis, remembering that some spending may be seasonal — such as holiday presents or greens fees for golf.

Budgeting tools, such as Mint.com, will enable you to highlight certain spending that won’t continue after retirement, such as commuting costs. Keep in mind this will be a work in progress even once you stop working. For many people “it’s going to take a year or so before you really get the hang of it, knowing what you are spending your time doing, how you are spending your money,” says Jonathan Guyton of Cornerstone Wealth Advisors in Minneapolis.

2. Fine-tune your income expectations.

Recent years haven’t been kind to savers. A lousy decade for stocks has been compounded by interest rates that are at historically low levels and seem likely to remain low for years.

Unfortunately, 401(k) calculators typically don’t rely on current yields when projecting your income during retirement. Instead, they usually rely on historical patterns. That means some people nearing retirement may be in denial about how much money they can earn from safe investments such as bonds or certificates of deposit, says Lawrence Glazer, a managing partner at Mayflower Advisors in Boston. “You have to be realistic about today’s income environment,” he says.

3. Start thinking about Social Security.

Central to your income planning will be Social Security benefits. You won’t know the exact size of the check until the first one arrives, but the Social Security Administration can provide an estimate that should be relatively close. You can get an estimate at SocialSecurity.gov, on the phone or in person at your local office. Be sure to check if you’re due additional benefits if you are widowed or divorced.

All this leads to one of the most important decisions regarding retirement planning: when to start taking Social Security benefits. Delaying benefits means larger checks in the future, but it may require eating into your savings upfront. Sit down with an adviser to do the math.

4. Build a cash reserve.

One thing you want to avoid in retirement: being forced to sell during a steep selloff in the stock or bond markets in order to raise cash to pay bills. The solution is to keep enough cash on hand that you can sell investments when you are comfortable. Many advisers recommend at least a year’s worth of money.

At Evensky & Katz in Coral Gables, Fla., advisers have long recommended that retirees hold two years of money in a separate account. A retiree then cuts himself a “paycheck” once a month which goes into a checking account for day-to-day living.

“In a perfect world, an investor would begin developing the reserve prior to retirement,” says Harold Evensky, president of Evensky & Katz.

A dedicated cash reserve is especially important if you are delaying taking Social Security. “The idea is that this is a bridge account that will deplete itself by the time Social Security kicks in,” says Mr. Guyton.

5. Get emotionally ready.

Amid the focus on financial planning, don’t lose sight of the fact that for most people, retirement is a completely new and different experience that can be challenging on an emotional level. While many people can’t wait to get out of the 9-to-5 grind, there are those for whom a career was more than a job. It was an identity.

“You’ve got the executive who has worked 24-7… and has always identified his self-worth with that paycheck,” says Mayflower’s Mr. Glazer. “Without that paycheck, he feels a little empty.”

Cornerstone’s Mr. Guyton urges those approaching retirement to think in terms of “retiring to something” and not “retiring from something.”

“If your definition of retirement is framed in terms of what you are leaving, you are setting yourself up for a much more difficult transition emotionally,” he says. “Even if it’s just some relatively small thing that you are energized about and this is something you get to do right now…you generally do much better.”