Now is the last opportunity to really sock away
retirement dollars. Ideally, you’re at your peak earning years and some of the
major household expenses, such as a mortgage or child-rearing, are behind you,
or soon will be. Perhaps you’ve inherited money from your parents. (On the
other hand, you might have parents who need your financial help.)
Take advantage of the catch-up provisions Congress
passed in 2001. Workers age 50 or over can invest extra dollars into their
employer’s retirement plan (if the plan allows it) once they’ve maxed out their
regular contributions. The extra amount is $5,000 in 2006 (adjusted for
inflation).
You also can put a $1000 catch-up amount annually
into your IRA starting in 2006.
Once you maximize contributions to your employer’s
plan, and IRAs if you qualify, invest additional money into investments that
don’t create much taxable income.
Investing at this stage typically needs to be more
cautious. As a general rule, we recommend shifting a portion of your
higher-risk investments into less volatile (and usually lower returning)
assets. But we also typically recommend maintaining a significant exposure to
stocks. You still have a lot of years ahead of you, both to reach retirement
and during retirement itself. You’ll need some assets that can stay ahead of
inflation.
What kind of retirement?
It ’s time to start focusing more closely on what
kind of retirement you want and what financial resources you have to pay for
it. The choices are many and so are the costs associated with them. We often
advise people to “practice” at their retirement. Want to move? Vacation there
several times—in all seasons. Try out that hobby you’ve always thought about.
Share your dreams with your spouse. It’s important
that both of you explore and work out differences. What if one wants to travel
and the other wants to stay home?
Calculate what your dream retirement will cost if
you haven’t already—but avoid rules of thumb. Arbitrarily figuring you’ll need
only 70 or 80 percent of your pre-retirement income may prove too low, or too
high.
Calculate what realistic financial resources you’ll
have to pay for your retirement. Also, talk to us about how you’ll roll over
your retirement assets in ways that either preserve their tax deferral or
reduce potential taxes.
Little time to save?
Make smart withdrawals from retirement accounts
once you retire.
