Carlos Osorio, AP
In this July 26, 2012, photo, Neta Homier looks over bills in her home in Toledo, Ohio. Homier says she relies on Social Security to pay her bills and while she is confident the program will continue to help her she fears it will not be able to rely on it.

According to the Employee Benefit Research Institute, almost 50 percent of workers ages 45 and older do not know how much they will need in retirement. In addition, those that had started the planning process and made the calculations generally were more confident in their ability to save and had higher savings goals than those that hadn’t.

Retirement planning is an inexact science with many uncertainties around variables that determine how you are going to get from here to there.

To keep from getting bogged down in the complexities, simplify your retirement planning by breaking it down into two important principals: make sure you are saving enough towards your retirement, and have a well-thought out plan.

To make sure you are saving enough, calculate the amount of income you will need in retirement. A general rule of thumb is to assume you will use 80 percent of your pre-retirement income needs. Once you calculate the amount of income you need, determine how much of this will come from other sources such as social security or a pension. The amount left is what you will need to meet your retirement income needs. Keep in mind that your anticipated retirement income needs are in today’s dollars and the absolute dollar amount needed in retirement will be higher based on inflation.

From here it is a matter of taking inventory of current investments, along with the amount you realistically believe you can save annually during your working years, and figure out what type of investment return you will need to reach your goal.

If you are not currently saving enough, the investment return needed may be unrealistic or too aggressive and will not be in line with your risk tolerance. In this case, you may need to either increase the amount of your annual savings or review the amount of income you think you need and see if you would be comfortable with a lower level of income.

Find a balance between your retirement income needs, the amount you plan on saving and the rate of return you can conservatively expect to receive based on the level of risk you are comfortable with. The earlier you can go through these calculations, the more time you will have to plan for contingencies.

Armed with the knowledge gained from the exercise above, you can begin developing an investment plan to act as a road map to get you to your ultimate retirement goal. The big trick will be showing some self-discipline in sticking to the plan that is developed.

Behavioral finance has consistently shown we are our own worst enemies when it comes to investing.

Our emotions have a tendency to get in the way of making sound investment decisions. If your plan is well thought out as you consider your investment objectives and your risk tolerance, you should have confidence to stick with it — unless some unknown factors comes into play that affect your objectives.

Decide on how you want to allocate or invest your money between different types of investments with varying degrees of risk or correlation with one another. This process is often referred to as asset allocation and typically categorizes investments in a general sense into stocks, bonds, real estate and cash.

How you allocate your investments will depend largely on your investment time horizon and how much risk you are willing to take. As you get closer to retirement, you will want to look at reducing the amount of risk taken with the money that has been set aside for retirement.

According to a 2009 DALBAR, Inc. study, the average stock fund investor from 1988 to 2008 made just 1.9 percent in the stock market — compare this to the 8.4 percent return for the Standard and Poor’s 500 Index. The primary reason given was that individual investors chase investment performance and don’t exercise enough discipline in sticking to an investment strategy or plan.

Try to remember how your emotions affected your investment decisions and the amount of investment risk you were willing to take during different market environments. My guess is that during a time when the market has been moving down sharply, you thought your ability to tolerate investment risk was relatively low. Conversely when the market was moving up in a euphoric fashion, you thought that your risk level was relatively high. This is human nature and one of the hurdles we all face when trying to be prudent investors.

Whether or not you are currently saving for retirement, you can begin the process by calculating what you need to save, develop a plan and exercise the self-discipline needed to stick with it.

Brett N. Karras is the President of The Karras Company, an independent registered investment advisor with approximately 800 million in assets under management