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10:05am EDT August 20, 2004
That special day you've planned for your entire working life is rapidly approaching -- the day you retire.. After another stressful day at the office or a business trip, unstructured free time sounds wonderful. But are you really ready to call it quits?

In order to be confident all your bases are covered and that there are no surprises ahead, here are seven points to prepare you for retirement.

1. What are your income sources? Your sources for income in retirement will be a combination of Social Security, retirement plans, IRAs, interest, dividends and rental income. The question is, will this be sufficient?

2. When can you receive Social Security? The earliest you can start receiving Social Security is at age 62. But if you begin then, the benefits are only 80 percent of what you would receive at "normal" retirement age (currently age 65 or older). People who defer Social Security benefits for as long as possible will increase their monthly benefit. This is especially important if you are still working, even part-time.

3. How much will you spend? Many people want to maintain the same standard of living and replace work-related expenses with travel, entertainment and other new costs. Since planners recommend that you assume 80 percent of current living expenses for retirement, make a realistic outline of expenses.

Remember to include income taxes and health insurance coverage in retirement, and don't forget about inflation-- assume at least 3 percent. A hefty retirement income at age 55 or 60 may be meager by the time you're 70.

4. How should you invest your capital once you're retired? The earlier you retire, the longer your retirement portfolio is going to have to work for you. Even though you're no longer working, it may not make sense to move all of your assets into conservative, lower-yielding, fixed-income investments.

Investing for both income and growth may be the more prudent approach to making your capital last. Therefore, plan on spending both capital gains and income, hoping that the growth portion of your portfolio will keep you from eating into principal. A withdrawal level of 4 percent to 5 percent of total invested capital usually works well and does not deplete your investments.

5. What if it doesn't add up? If your income needs in retirement don't mesh with your assets, what can you do? Is selling your home, taking your equity out and downsizing an option? Deferring retirement is another answer, as is decreasing your expenses. It never hurts to save more to reach your goals.

If you "practice" being retired and living on either one salary while you both work or reduce your monthly expenses, you can gauge what retirement could hold. Also consider working part-time during retirement.

6. Are you psychologically ready to retire? If the numbers are working for you and finances aren't a concern, are you psychologically prepared for not working? Do you have hobbies or outlets to occupy your time? How is your health? Will your spouse continue to work? Is that going to be an issue for you? How are you going to replace social contacts that were a critical part of your day?

Part-time work is an exciting thought, maybe even in a new field. Consider volunteer work or going back to school. There are as many ways to define retirement as there are retirees.

7. Finally, see a competent, experienced financial planner every few years to validate your assumptions and measure your progress. The planner can serve as a sounding board for a second opinion about your retirement strategy and investment allocations.

Retirement is your well-deserved reward for many years of hard work. It's important to know that you may be living for 30 years in retirement, and your money needs to be there, too.

After all, the only thing you really want to worry about is how your envious friends would give anything to be in your golf or tennis shoes.

Jacqueline C. Berkelhamer, MBA, CFP, (jberkelhamer@cpcadvisors.com) is a senior financial planner with Consolidated Planning Corporation. Her expertise includes estate and gift planning, retirement planning, and tax strategies. She is responsible for designing, integrating and implementing the firm's comprehensive financial planning process. Reach her at (404) 892-1995.