Saving for Retirement

Your Retirement Action Plan

A decade-by-decade guide to getting back on track.

By Mary Beth Franklin, Senior Editor

From Kiplinger's Personal Finance magazine, September 2009

Now that the shock of one of the worst stock-market declines in history is beginning to fade, it's time to reassess where you stand. Here's a breakdown of the steps you should take at each life stage to get back in the driver's seat. Depressed stock prices present an enormous buying opportunity for young and mid-career workers, but near-retirees may need to reassess their investment strategy and timetable.

IN YOUR 20s-30s: Get started

Sign up for your employer's 401(k) plan (or don't opt out if you're automatically enrolled).

Contribute at least enough to capture your employer's match.

Boost your contribution by 1% per year or more. Ultimately, your goal should be to save 15% of your salary, including the employer match.

Make sure you're invested appropriately. With decades ahead to save, you can afford more risk. Load up on stocks that are cheap in today's market.

Take advantage of the retirement savers tax credit if you're eligible. It's worth up to $1,000 if you're single with an income of $27,750 or less. If you're married with an income of $55,500 or less, you and your spouse can each claim the credit. That's on top of the usual upfront tax breaks for 401(k) and IRA contributions.

IN YOUR 40s: Plan and save

Max out contributions to your 401(k) or similar work-based savings plan ($16,500 in 2009).

Contribute to a spousal IRA if you have a stay-at-home spouse and file jointly. The limit is $5,000 in 2009.

Lock in future tax-free retirement income by contributing to a Roth IRA. To be eligible, your income can't exceed $120,000 if you are single or $176,000 if you are married. You may have a Roth 401(k) option at work with no income-eligibility limit.

Get advice. Increasingly, retirement-plan administrators are offering personal guidance to help you set and monitor your retirement-savings goals. Or check TD Ameritrade's new WealthRuler tool or Fidelity's My Plan.

IN YOUR 50s: Stay focused

Take advantage of catch-up contributions that allow workers 50 and older to contribute up to $22,000 to their 401(k) and up to $6,000 to a traditional or Roth IRA in 2009.

Get a financial checkup. You still have time to make up for any shortfalls by saving more, investing smarter or working longer. Find a planner through the Financial Planning Association or the National Association of Personal Financial Advisors.

Ask whether you can take "in-service" distributions through your 401(k) plan, which allow you to transfer funds to an IRA while you're still working, giving you greater control over your investments.

Plan to pay off your mortgage before you retire even if you must tap other sources of cash, such as unneeded life insurance.

IN YOUR 60s+: Take a test drive

Give your retirement budget a trial run by living on less and saving what's left over.

Develop a plan for turning your accumulated savings into retirement income for life -- such as buying an immediate annuity to create guaranteed income.

Investigate your health-care options. You'll need insurance if you retire before you're eligible for Medicare at 65, and you'll still need to supplement your coverage after that.

Work longer and delay claiming Social Security benefits -- until age 66 or laterÑto maximize income. Get a personalized estimate of your benefits at www.ssa.gov/estimator.

Front-load your 401(k) contributions if you expect to retire before the end of the year.

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