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The financial media is full of retirement advice. Most of the advice is based on cookie-cutter solutions like needing 80% of pre-retirement income in order to retire, drawing down 4% of your portfolio annually, or investing in a few hot stocks to "guarantee" a secure retirement.

But retirement planning has to be specialized and personalized to the individual retiree. An approach that makes sense for a retiree with $5 million in the bank and a vast real-estate portfolio may have no basis in reality for a retiree with $750,000 in savings and children and grandchildren to support. When reading these articles I am often left with the feeling that the authors have never sat down across from a living, breathing retiree.

A lot of these articles fool investors into a false sense of security. Retirement advice is not one-size-fits-all. What are the goals of the retiree? Do they want to spend every last penny before they die? Do they want to help children and grandchildren while they are still alive, or leave an inheritance? For wealthier retirees, the question of philanthropy may be of great importance.

Understand expenses

For investors of modest means (defined broadly as $200,000 to $500,000 in investments, home owner, current income in the $50-70k a year range, and will receive social security and some modest pension) the most important aspect of planning you can do vis-à-vis your retirement is to try and figure out your estimated expenses.

Here is where I differ from the 80% crowd. My general principal is that leisure equals money spent. The more free time people have, the more money they will spend. Whether it's going with your spouse to a café for lunch, travelling a few times a year, or pampering grandchildren, the early retirement years can be costly.

If you can figure out how much money you will need, then you can figure out how much income you will need to generate to supplement your pension, social security and any other income sources you may have (from part-time work, perhaps).

Create income stream

Once you have a handle around your income needs, you should go ahead and create an income stream. Forget about the 4% drawdown rule. In many instances you can create a portfolio that will be able to generate the income you need without having to draw down principal. Preferred stocks and international bonds (both of which I have recently written about on SA) are good ways to balance a portfolio and generate much higher levels of income than you will generate in government bonds or CDs.

Growth and inflation

Retirees still need growth assets in their portfolios. As we are living longer, we need to make sure that we don't outlive our savings. In addition, investors need to protect the purchasing power of their money by keeping up with inflation. Dividend stocks that have a history of rising dividends are an effective way to solve both of these issues. The beauty of investing in dividend-paying stocks is that you get the best of both worlds: Not only do you get the potential capital appreciation that stock investing gives you, but you also receive a steady income stream that is at least as competitive with -- if not more than -- investing in bonds.

With more than a few large, blue-chip companies paying dividends that are in excess of 3.5% annually (compared with about 2% for a highly rated bond), many retirees can enhance their income streams with these stocks. Though I am not recommending that you go out and buy them, companies like Kimberly Clark (NYSE:KMB), Johnson & Johnson (NYSE:JNJ), would be examples rising dividend stocks.

Investors need to realize that markets can fall dramatically and if they are near retirement, a big market hit can put a major dent into retirement plans. That's why as investors get within 5 years of retirement they should become much more conservative, and adjust their allocation to start creating the aforementioned income stream.

Don't rely on some general advice when planning your retirement. Sit down by yourself or with an advisor and start figuring out your goals and needs. Some solid planning will go a long way towards financial peace of mind in your retirement.

Source: Retirement Planning Is All About Your Expenses

Additional disclosure: I have clients that I advise who may have positions in the stocks mentioned.