As people start planning for retirement, there are a number of decisions that they must make.

One of the first steps is deciding what an ideal retirement will look like. Many boomers have a different goal than their parents had. Merrill Lynch surveyed affluent boomers between ages 46 and 64. A large majority expected a more active lifestyle, a different look and a higher standard of living.

About 70% planned to keep working and 20% expected to start or further their own businesses. Most that have success running a business in retirement were already doing so before retirement. There is a huge failure rate in new business startups.

There are some gender expectation differences, as the survey found more women hoping to travel, pursue a hobby, be involved in community and charity work. More men thought of starting or furthering a business. Some goals and hobbies require a larger monetary commitment than others.

Other decisions, such as where to live, might be up for consideration. This can be influenced by family location, cost-of-living and climate conditions. Taxes can be another influencing factor.

Once you have a picture of what retirement will look like, you need to determine the monthly income needed to support it. Once you have these totals, you need to compare with the sources of income that will be coming in. This might be from Social Security and pensions. If these two fixed-income sources cover all of your expected cash needs, you are probably in good shape. Often, there is a shortfall. This gap must be made up from other sources.

Some might come from investments such as 401(k)s, Individual Retirement Accounts or brokerage accounts. You may have a Roth IRA. It is important to take money from the right accounts to minimize taxes so that you have more to spend on your needs and desires.

You may have rental income, royalties or may plan to work part time. By factoring in any of these sources, see if your income gap is covered. If not, you may have to consider some adjustments to your desired retirement. Make sure you plan for inflation protection. Many people use 3% for their plans. Without this element, your purchasing power will slowly erode away.

There are three main risks in retirement. First is longevity. That is the possibility of running out of money. Unless you come from a family with very short life expectancy or are currently very ill, you should provably plan on living until age 95. With modern medicine and improved environmental conditions, centurions are one of the fastest-growing segments in our society.

The second major risk is market risk. If the market crashes right before or soon after retirement starts, you could get wiped out in your investment accounts. This sequence of risk can be a death blow. Many people just got an unusual second opportunity. Never before have we seen the stock market crash so fast and recover so quickly. That will probably not happen the next time there is a major correction.

The third major risk is taxes. FINRA identified this as being the largest risk to your retirement. Proactive tax planning is necessary to reduce your overall tax burden. Future tax rates will have to increase significantly to pay for all of the government spending on COVID-19.

Do a comprehensive review of your financial positions a few years before retirement to make sure that you are ready. This will help to eliminate many of the surprises.

Gary Boatman is a Monessen-based certified financial planner and the author of “Your Financial Compass: Safe passage through the turbulent waters of taxes, income planning and market volatility.”

To submit columns on financial planning or investing, email Rick Shrum at rshrum@observer-reporter.com.

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