Many investors concentrate on building their nest egg during their working lives to pay or help pay for their retirement but fail to give enough attention to planning for a retirement that may last 25 years or longer.

A lack of retirement planning makes retirees more financially vulnerable than necessary in numerous ways including the possibility of outliving your retirement savings, overreacting to market volatility, not planning for unexpected costs and holding a portfolio that isn't properly diversified.

Some retirees who have not properly planned for retirement may have underestimated the amount required to finance their anticipated lifestyles, while others may be living too frugally given their financial needs.

By following a practical approach for creating a retirement plan that aligns with retirees' often-unique goals while mitigating risk, retirees may gain greater confidence that savings will match with your future financial needs.

Step 1: Determine your retirement goals

These goals typically include having enough income to pay for basic living expenses, a contingency reserve (such as for medical treatment, home repairs and aged care) and discretionary spending (such as eating out and holidays). And you may plan to leave an inheritance. Once your goals are listed, you can prioritise their importance.

Step 2. Understand your risks

These include market risk, health risk, longevity and mortality risk, event risk (again such as medical treatment, home repairs and aged care), and tax and policy risk (changes to government policies and health care coverage). The research suggests that these risks should be addressed in the context of their impact on achieving their retirement goals.

Step 3: Assess your available financial resources

This will help ensure that your capital is used as efficiently as possible. Financial resources include super and non-super savings, age pension if eligible, annuities, insurance, housing wealth, insurance, and any additional income if planning to work in retirement.

Step 4: Develop a plan to achieve your goals and mitigate your risks

This is a matter of bringing together the various elements of your retirement planning. The right mix of resources should be tailored to your individual circumstances. It should take into account the relative importance of competing goals and the risks that a retiree may be susceptible or sensitive to.

The ultimate retirement goal

In the end, peace of mind may be the ultimate retirement goal bearing in mind this phase of life may represent at least a quarter of our lives.

You can read more about planning for retirement in Vanguard's Roadmap to Financial Security : A Framework to Decision Making in Retirement.

Smart Investing, Vanguard