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 may need additional sources of income to achieve financial security. 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.

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.

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 your account.