06/06/2013 12:15 pm ET Updated Aug 06, 2013

4 Steps to Planning Your Retirement Savings

By Linda Descano, CFA, President & CEO, Women & Co.

Conventional wisdom suggests a couple of rules for retirement saving and spending. One rule says it's appropriate to draw down savings about 4 percent per year during retirement. Another says you need approximately 80 percent of your current income per year in retirement. But these rules don't take into consideration your own unique goals. For example, your dream of spending six months sailing around the Caribbean or your promised contributions to your niece's college tuition.

It may not seem like a significant difference between 3 percent and 4 percent. Or 80 percent and 85 percent. But the sliver of difference could compromise your options for homes, travel, colleges, and charities. It's the difference between the future you shape, and the future that just sort of happens.

The question is, how do you figure out just how much savings you'll need for the life you want? Here are four simple steps to get you there.

Step 1: Visualize Your Retirement
Start by visualizing your retirement. Ask yourself how long you want to work, or if starting a business is one of your dreams. Think about how you wish to spend your time in retirement. Will you relocate or stay in the same area? What do you think your typical day will look like? How much are you planning to travel? Are you interested in going back to school? Do you expect to have aging relatives in your care? Will you continue to support the causes you care about by donating time and money? And of course, discuss all these revelations with your partner.

The more thought you give today about how you plan to fill the days in your "golden years," the better positioned your financial professional will be to help you understand what that lifestyle might cost and what you'll need to do today -- as well as in retirement -- to fund that lifestyle.

It's likely that your financial professional will ask you about your family's longevity and health history, or about your health benefits and long-term care preferences. It goes back to the conventional wisdom. On average, a 65-year-old woman can expect to live until age 85. And, according to the National Clearinghouse for Long-Term Care Information (NCLTC), as of 2013, approximately 70 percent of individuals will require some type of long-term care in their lifetime. Ask yourself, do you want to bet your future on the law of averages, or do you want a plan that is based on the realities of your life?

Step 2: Analyze Your Current Financial Situation
Next step is to figure out where you are today by identifying all the varied pieces of your financial life. This includes analyses of your net worth, earnings, asset allocation, education funding, insurance, stock options and equity compensation, real estate, loans, assets locked up in a business, retirement plan distributions, and even Social Security.

Step 3: Project Your Income Needs and Generate a Plan
With this information in hand, it's time to project your retirement income needs and identify strategies to generate that income. The traditional approach looks at your current assets and assumes they will earn a fixed rate of return every year. But we know all too well that life isn't certain. Markets fluctuate, sometimes greatly as we learned during the recent financial crisis. And that's important. Because what if the market -- and thus your portfolio -- decline in the very year that your child's college tuition is due? Or just when you've paid for that safari you always promised yourself? The timing of strong and weak returns could mean the difference between the ultimate success or failure of your overall plan. For this reason, you should consider asking your financial professional to provide you with an analysis that factors in uncertainty of market returns and estimates your chances of achieving your goal.

You might be comfortable with a 75 percent statistical likelihood of reaching your goal. Or you might need an 85 percent success rate to sleep soundly at night. Whatever your number is, getting there may lead you to change your plan. You may plan to retire later, or earlier. To save more -- or spend less. Or to alter your asset allocation. But, through this statistical approach, your financial professional may be able to help you with any one of these actions, or a combination of them and may improve your chances of success, however you define it.

But even after calculating multiple scenarios and considering all your asset classes, it's important to examine the impact of taxes on your earnings and distributions, as well as the effects of inflation and expected cash flows (remember your niece's tuition?).

Step 4: Schedule an Annual Check Up
Once your plan is in place, consider sitting down with your financial professional at least once a year to review your plan and make sure it stays in sync with your life. Review performance and the current allocation relative to your original asset allocation. Share any changes in your circumstances, such as a new child, potential relocation, or pending divorce. Discuss whether it's appropriate to rebalance your balance to keep the portfolio risk within your risk tolerance parameters. As your retirement date approaches (and after you retire), you may want to re-evaluate your appetite for risk and shift to a more conservative allocation.

So, how much is enough? Only you can know the answer to that, because only you know what you want to do in this lifetime. Either way, talk to your financial professional, and you could increase the odds of making your retirement vision a reality.

And for more helpful tips on retirement savings, including planning for health care costs, check out our article: Paying for Health Care in Retirement: Will You Have Enough Saved?

Women & Co., a service of Citi, is the go-to personal finance source for women. By providing financial content, commentary and community, Women & Co.'s mission is to get women thinking and talking about personal finance. Founded in 2000, Women & Co. is one of the longest running personal finance websites dedicated to helping women strengthen their financial futures.