The 401(k) plan. The most common form of retirement planning is the 401(k) plan. Many employers offer a 401(k) plan to their employees. These plans allow employees to invest a certain portion of their income directly into a company-sponsored investment vehicle, before they pay taxes on that income. Taxes are deferred and are due only when employees later sell those investments and cash out from the plan (presumably in retirement when in a lower tax bracket). This is useful for retirement planning because it allows employees to invest more pre-tax money when earning higher wages and simultaneously cutting their tax bill in the current year. In 2009, investments into a 401(k) plans were limited to $16,500 for those 49 and younger, and $22,000 for those age 50 and older.

Estate Planning. Another important aspect of financial planning is estate planning. Currently, estate tax laws are in flux as Congress tries to agree on a more permanent set of regulations. Lifetime gift and estate transfer limits—the amount of money/property you are able to give away before having to pay taxes on further gifts—are set to rise through the end of the decade.

Wills. Though many of us procrastinate on thinking about, talking about, or drafting them, it’s vital to have a clearly written will. This document can save family-members from both legal and tax consequences when they try to settle estate issues. This is especially important for seniors who hope to establish trust funds or make charitable donations, because these wishes need to be outlined clearly in order to be carried out legally.

Trusts. One retirement planning strategy that has become very popular recently is establishing a trust. The foremost reason for establishment of a trust is to avoid the probate process. That is, when you die, the Beneficiaries of the Trusts receive what is due them—immediately—and no court has a say in the matter. Avoiding probate not only expedites the dispensation of your estate’s assets, but takes, in many instances, possible estate and gift taxes off the table. For example: If you had a Will stating only that your property was to be divided up equally among your surviving children, the IRS and state government would take what they were legally entitled to before any of your beneficiaries saw a dime. A legal Trust often legally circumvents taxes that would otherwise be owed.

Another advantage of setting up Trusts is preserving your family’s privacy. Probated matters become public record. But no court approval is needed for a Trust to become a legally recognized entity; the paperwork remains more private.

Next Steps.  If you have not yet retired, and want to find out if you’ve saved up enough money to do so safely, inventory your current investments. (Especially given the events of 2008.) At what age do you plan on retiring? How much annual income will you need, and for approximately how long? Next, estimate the average yield on your investments. With those figures and a financial calculator, it’s fairly easy to figure out how much money you need to save.  If you have concerns about your retirement planning strategies, do as much research as you can on your own. You may also want to consult a financial professional . . . but determine how possible candidates are trained, licensed, and compensated. You want someone who can offer appropriate resources and advice—based on your financial and retirement needs, not theirs.

Given the current economic environment, it’s no surprise that many people are beginning to wonder if they have saved enough money for retirement. Many are understandably confused by the complex tax rules that govern investments, retirement accounts, and estates, as well as recent events. Here are the basics of some of the more important aspects of retirement planning.