Before you can determine how much money you'll need for a comfortable retirement lifestyle, you need to think about how you plan to spend your money in retirement. Remember, retirement won't free you from ongoing expenses. You'll still have to budget for items such as food, clothing, utilities, and car expenses. And while some expenses will decrease as you approach retirement-mortgage payments, for example-other expenses will likely increase. For instance, you may spend more money on medical insurance and health care, as well as entertainment, recreation, and travel.

Because people today are living longer, most retirees will be spending more time in retirement than did their parents and grandparents. You may need your retirement income to last for 15 to 20 years or more. This means you'll need roughly 70 to 80 percent of your pre-retirement income to afford a comfortable lifestyle. So it's a good idea to start thinking now about your future expenses.

When you retire, you'll most likely receive your income from more than one source. There's Social Security (US) or Social Insurance (Bermuda) and maybe income from your personal savings or investments. But, like so many of us, you may need an additional source of income to achieve financial security in retirement. Your company's retirement plan is an invaluable resource that can help make your future free of financial worries.

When it comes to saving for retirement, time is money-the sooner you start, the more you save. If you start early, you have more time to make the power of compounding work for you. Compounding means that the interest on your savings or investments is earning interest. For example, let's say you start by investing $1,000. Assuming a 5 percent interest rate, you would have $1,050 by the end of the year. That means you'll be earning interest on $1,050 during the next year. If you get a 5 percent return on this $1,050, you will add another $52.50 to your account, bringing your total up to $1,102.50. After 3 years your account would be worth $1,157.63, 4 years $1,215.51, 5 years $1,276.28, and so forth. So you can see how the value of your original investment will increase exponentially over time.

The longer you delay saving for retirement, the harder it becomes to accumulate enough money. Saving gradually over many years is much easier than trying to catch up by saving a lot in a short time later in your career.

Inflation is a general increase in the price of goods and services over time. Simply put, it makes everything you buy more expensive. To ensure a comfortable retirement lifestyle, you need to allow for a higher cost of living due to inflation when you estimate your annual income needs for retirement.

There are two general types of retirement plans: defined benefit (DB) plans and defined contribution (DC) plans. In the US, these are tax-deferred programs, meaning that you don't pay taxes on any of the money that goes into your account--including the interest your money earns--until you withdraw the money, usually after you retire.

Bermuda's National Pension Scheme (Occupational Pensions) Act of 1998 mandates the establishment of private occupational retirement schemes (also referred to as employer-sponsored pension schemes) operating under specific regulations and appropriate supervision. An employer-sponsored plan may be a defined benefit (DB) or defined contribution (DC) arrangement.

A defined benefit plan (for example, a pension plan) promises to pay a specific amount of money each month when you retire-in other words, the plan defines the benefit you will receive upon retirement. DB plans include a formula that is used to calculate the benefit amount according to how many years you've worked for the company and how much money you've earned over all or part of the employment relationship. In most cases, you do not contribute money to a defined benefit plan-the plan is funded by your employer's contributions. This means that your employer decides how to invest the money, and keeps any gains or absorbs any losses over time.

Defined benefit plans are most profitable for employees who work for one company for many years, since the benefit amount is determined, in part, by years of service. But what are the options for workers who change jobs several times during their careers and would receive only moderate benefits from DB plans? The increasing tendency of workers not to remain at one workplace for all of their careers has created the need for another type of retirement plan--the defined contribution plan.

In a defined contribution plan, the amount of money that's contributed to your account is defined, rather than the benefit you'll receive upon retirement. A defined contribution plan pays you based on how much you and/or your employer contribute, how long you and/or your employer contribute, and how the contributions are invested. This means that you can accumulate funds for your retirement even if you're with a particular company for only a few years.

In the United States, there are three main types of defined contribution plans: profit-sharing plans, 401(k)s, and 403(b)s. In a profit-sharing plan, you share in your employer's profits; you do not contribute money to the plan. In a 401(k) plan, you make contributions to your own account; your employer is not required to match your contributions. 403(b)s are similar to 401(k)s, but they are offered only to employees of K-12 public schools and certain non-profit organizations.

A profit-sharing plan is program sponsored by your employer that enables you to share in the company's profits. Your employer decides how much money will be contributed to the plan each year, and a formula within the plan determines how the money will be distributed among the employees' individual accounts. Most likely, your employer will also decide how the contributions will be invested, although in some cases employees do have a say in investment decisions.

The amount of money you will receive from your employer's profit-sharing plan is not fixed. Rather, your benefit is the sum of all contributions to the plan, plus or minus any gains or losses on investments. When you withdraw the money at retirement, you will have to pay taxes on the amount you take out of you account.

In the US, the Employee Retirement Income Security Act (ERISA), passed in 1974, protects employees' rights when it comes to their retirement benefits. Basically, ERISA establishes the rules that employers must follow in providing retirement plans to their employees. ERISA and the Internal Revenue Service (IRS) Tax Code specify how all retirement plans operate in the United States.

In Bermuda, the Pension Commission ensures that all pension plans are being run according to law. The Minister of Finance appoints the chairman, deputy chairman, and at least five other members who make up the Commission. It's the Commission's responsibility to verify that payments of benefits are made and to investigate complaints. The Commission can refuse to register a pension plan, amend a pension plan, or revoke the registration of a pension plan that does not conform to the law.

The National Pension Scheme (Occupational Pensions) Act of 1998 was enacted in response to concerns about the inadequacy of pension income and the long-term viability of Bermuda's Contributory Pension Fund. The Act mandates the establishment of private occupational retirement schemes (also referred to as employer-sponsored pension schemes) operating under specific regulations and appropriate supervision. This means that all eligible employees in Bermuda who are Bermudian or the husband or wife of a Bermudian who is employed by an employer in Bermuda can look forward to future pension benefits.

A pension plan may be a defined benefit (DB) or defined contribution (DC) arrangement. A defined benefit plan promises to pay a specific amount of money each month when you retire-in other words, the plan defines the benefit you will receive upon retirement. In a defined contribution plan, the amount of money that's contributed to your account is defined, rather than the benefit you'll receive upon retirement. Under the terms of the Act, benefits for all plans must accrue on a gradual and uniform basis, and must not be variable at the employer's discretion.

If you are over the age of 23 and you work at least 720 hours a year for your employer, you must be included in your employer's pension plan. If you work for more than one employer, you must be registered in all plans for which you are eligible.

The mandatory minimum contribution rate for a defined contribution plan is being "phased in" over a five-year period. Currently, the contribution rate is 2% of your pensionable earnings, which is matched by your employer. Your contribution rates will be increased annually by 1%-again, matched by your employer-until you and your employer are both contributing 5%, giving a combined contribution rate of 10%. A defined benefit plan must be sufficiently funded to provide the promised benefits. The government or the Pension Commission will clarify whether the minimum contribution rate described above should also apply to defined benefit plans.

Pensionable earnings are monetary payments you receive directly or indirectly to a maximum of $200,000 per year, including:

- wages, salary, or leave pay
- any fee or commission
- bonus in excess of 10% of annual salary (includes profit sharing)

The following are not considered to be pensionable earnings:

- overtime payments for hours in excess of 35 hours per week
- severance payments
- retirement or long-service recognition payments
- health insurance premiums

A pension plan is not eligible for registration by an employer unless it is administered by a plan administrator. It's the administrator's responsibility to make sure that the pension plan and pension fund are managed properly according to:

- the documents establishing the plan, as approved by the Pension Commission
- the Act and its regulations
- the best standards of management designed to protect the interests of the plan members and other persons who may receive payments from the plan

At least once a year, your plan administrator will provide you with a written statement that includes the necessary information about the pension plan, your pension benefits or account balance, and any ancillary benefits. The administrator also must provide you with a statement of benefits if you leave your place of employment or cease to be a member of the pension plan. It's important to note that the pension fund-that is, the fund maintained to provide benefits under the pension plan-is separate from the employer's assets, and must be held by a financial institution, a trust resident in Bermuda, or other custodian made responsible by law.

The normal retirement date under any pension plan registered under the Act cannot be later than the year in which you reach 65 years of age. However, you may retire up to ten years earlier, in which case the value of the immediate pension must at least equal the value of the pension deferred to normal retirement age. How will I receive payments from my pension plan? The Act does not allow lump-sum payouts of pension benefits upon retirement, since the goal of the National Pension Scheme is to provide a lifetime retirement income to pensioners. You will receive your first payment on the first day of the month following separation from your place of employment.

If you've worked for less than two years for your employer when you decide to change jobs, you're entitled to receive a refund of your contributions plus any interest earned back. After two years of plan membership, your benefits are fully vested. This means that all of the money in your account-including your employer's contributions-belong to you. So after two years, you're entitled to transfer any contributions paid and accrued benefits in your previous employer's plan to another registered pension plan. You must notify the plan administrator within 90 days of leaving employment. The administrator then has 30 days to comply with the request. Full protection is afforded in the Act to ensure that money payable or transferred from a pension fund is not used as a security for a debt and remains exempt from execution, seizure, and attachment from creditors.

If you die before you retire, the value of your account plus any additional voluntary contributions will be paid in the form of a lump sum to your designated beneficiary. The beneficiary may choose to have an immediate or deferred pension. If you die after retirement, your benefits will be paid to the appointed beneficiary in accordance with the form of the pension benefit provided for under the terms of the plan. If you did not appoint a beneficiary or the beneficiary dies before you, then the benefits will be paid to your estate.