Step One is to understand what a retirement plan is, and to identify the three large numbers you need to keep track of while you are developing your stash. With these three totals on your spreadsheet, it's much easier to develop long-range retirement income goals that make personal sense. A retirement plan is an income production plan. Guaranteed retirement income - projected expenses = the gap. No gap, add parents and children to the expense number. There's always a gap.

Employer provided pension plans, Social Security, and (always much too expensive) fixed annuity contracts, are retirement income providers. They are monthly income machines that you have paid dearly for but which may not be adequate to cover your retirement expenses--- most of us will need more income than our guaranteed benefits will provide.

And we need to develop these additional income sources while we are still earning some kind of income. The retirement plan is the investment process you employ to eliminate the gap between your projected guaranteed income and a conservative estimate of your retirement expenses. The sooner and smarter you invest before retirement, the easier the transition from full employment to full vacation will be. Smart investing involves separating your security selections by purpose, and monitoring their performance in the same way. You're never to young to start developing the income side of the portfolio.

Once you start to draw income at retirement, it is much more difficult to invest effectively and unemotionally. Since your income will need to remain secure and constant through several economic, market, and IRE (interest rate expectation) cycles, you really need to develop appropriate portfolio market value expectations if your program is to survive. You cannot afford to take your eye off the income ball, because income is the only thing you can spend without depleting the productive value of the assets in your investment portfolio.

Obvious? Yes, but only until the market value of your portfolio begins to shrink as a result of economic, market, and IRE cycles. If you invest properly, it (the income) should continue to grow in spite of changing market conditions and fluctuating market value numbers. You must learn to expect market value fluctuations and take advantage of them--- assuming, of course, that you are following appropriate quality, diversification and income generation standards.

Retirement income planning became more difficult for most of us around the time corporate America realized that defined benefit pension plans were far too expensive to manage and maintain. At around the same time, the Social Security trust fund somehow disappeared (Did it ever exist at all?), and more and more of our hard earned was needed to support our aging friends and relatives. Why haven't the myriad of defined contribution programs been able to fill the retirement income gap?

Because millions of totally investment-inexperienced people were given discretion over billions of investment dollars that could be tax detoured out of their paychecks and into IRAs, 401ks, 403bs, Thrift, Savings, Thrift/Savings Plans, etc. Self directed investment programs generated a need for an investment media; the investment media fueled the speculative juices of an emotional and naive mass of newbie investor/speculators; Wall Street created tens of thousands of new products and compound income schemes to sponge up the wayward dollars.

The Masters of the Universe were ROTFLOL while the Investment gods gaped in disbelief.

Defined Contribution plans are just not retirement plans--- even if your employee benefits department, the media, Wall Street, and Uncle assure you that they are. Most plans are difficult to self-manage with a retirement income objective. Still, these benefit plans are necessary and quite capable of taking you close to where you want to be. Their only drawback is the false sense of wealth and retirement security that they promote. Either the money has to be converted into an income portfolio--- a costly and time-consuming process--- or far too many mutual fund shares have to be sold to produce the spending money

Most people think of savings and investment programs as retirement plans, and rationalize away the need for additional, outside development of an income investment portfolio. This is because all of the information they receive speaks to market value growth instead of to income. It's very likely that less than half the money will ever be yours to spend! What, you say--- why? Here's an example. A NYC resident with a $3 million IRA retires with the expectation of maintaining her life style. Even invested for income alone, $15,000 per month is easy to generate. But how much more has to be disbursed to satisfy three levels of tax collection?

Next example. The same portfolio in equity mutual funds during a correction--- now you're dipping into principal!

Even though defined-contribution plans are excellent mechanisms for growing an investment portfolio with your hard earned, pre-tax, dollars, most plans and most plan participants worship the market value god to the exclusion of all others. Most people are too greedy and/or tax-averse to convert them into income producers during rallies--- when they can lock in a meaningful cash flow. Additionally, the counter productive IRC encourages our use of owned assets first--- a universally ignored phenomenon.

The "buy and hold" mutual fund mentality doesn't transition well from growth to income--- regardless of the fund category or description; the idea of helping people into a comfortable retirement hasn't stopped the tax collectors; the market cycle is just as likely to be down as up when your gold watch is presented. You have to do more, and less, to secure that comfortable retirement.

Step One of the retirement plan is developing a focus on income, and understanding that spending money and market value are not blood relatives. Step Two is developing the right combination of tax deferred and tax-exempt income--- among other things.