Where are you now?

The first step is to know your current financial situation. List all your assets, as well as your liabilities. Assets include money in the bank along with money in your checking account, investments, pensions, home, antiques, etc. Some liabilities would be credit card debt, mortgage loans, car loans, medical bills, child support, etc. Then add your assets. Take that amount and subtract from it the total amount of liabilities. This is your net worth.

Now look at your plans for retirement. How much will you need each year to accomplish those plans? There have been suggestions that 70% of your income before retirement would be adequate for retirement income. After all, you won't need those Brooks Brothers suits or have the daily commute, your income will not be assessed social security taxes and your taxes in general may decrease, and you may downsize to a smaller, more economical home.

However, consider what you will be doing with the time not spent "nine to five-ing" it for someone else. The trips to visit the kids, travel, or just plain enjoying yourself usually carries some kind of price tag. Retirees report they are spending more money, even though they had planned to spend less.

Also take into account your health. More than likely your employer offers a health plan that will not continue upon retirement. But most likely you will need it more as you age. Cancer and other diseases are more prevalent in senior citizens and you do not want to spend your savings on doctor and prescription bills. So you will have to have enough put away to take care of a health insurance plan, plus the added expenses that your plan will not cover. Long term care is another expense either in insurance coverage or in actual care.