What’s the biggest retirement planning mistake most Americans make? Failing to plan at all, say tax experts and financial advisors. In fact, the very thought of attempting to stockpile enough funds to see us through retirement is 
enough to give most of us the shakes. The good news? Taking proactive measures to plan for your future fiscal well-being isn’t as hard as you might think. These five steps will help you kick your retirement savings into gear.
Step One.
Look at your total income and total living expenses to calculate the maximum amount you can put away each year. Be sure to factor in often overlooked expenses, such as car insurance and medical expenses, as well as income other than your paycheck—interest or dividend income, for example.
Step Two.
Determine how much you’ll need to save to live comfortably in retirement and how much you’ll need to save each year to get there. (Free online calculators at www.bloomberg.com, www.moneycentral.com, and www.cnnmoney.com can help you compute both figures.) Be sure to take into account that your spending may change dramatically in retirement. An expensive commute, for example, will disappear. However, that boon to your budget might well be offset by the cost of any leisure activities you plan to pursue with your newly found free time. Finally, if the final number exceeds what you’ve outlined in your budget, you’ll need to revisit step one and look for ways to cut current expenses or to increase your income to make your savings goal.
Step Three.
Set up a qualified retirement plan. This can be a savings plan that lets you save pre-tax dollars, such as a SEP, or—if you meet the income criteria—one that lets you save after-tax dollars that then grow tax-free as long as you wait until retirement age to make withdrawals, such as a ROTH. Small business owners with no full-time employees other than a spouse may want to consider a self-employed 401(k), which enables you to make larger pre-tax contributions per year.
Step Four.
Invest your savings in a diversified portfolio. Ideally, you want to balance growing your funds at a healthy rate against the risk of losing your savings. For most retirees—particularly those closer to retirement age—that means investing in no-load mutual funds rather than individual securities. Whatever type of investment you choose, be sure to monitor it and revisit your degree of risk regularly—or consider lifecycle funds that shift into more conservative investments as the account holder approaches retirement age.
Step Five.
Address potential pitfalls. Plan to set aside an emergency fund of six months worth of living expenses to avoid a situation where you need to dip into retirement savings during a slow business cycle or an emergency, such as needing to help a child or aging parent financially. In fact, if you have children, consider opening a 529 or Coverdell plan that lets you place pre-tax income into these savings accounts where withdrawals won’t be taxed as long as the money is used for education. This will help ensure that your retirement isn’t spent footing Junior’s college bill. •