Turning 50 is turning point for preretirees

WASHINGTON (8/22/07)--Baby boomers, listen up: Your 50th birthday is not only a personal milestone, it's the perfect time to take stock of your finances for your countdown to retirement, regardless of whether it's five or 15 years away (Kiplinger's September).

What's so special about age 50? For starters, it's the age at which you can begin to make catch-up contributions to key accounts. This year, if you're 50 or older by the end of the year, you can contribute an extra $5,000--for a total of $20,500--to a 401(k) account, and you can contribute an additional $1,000--for a total of $5,000--to an individual retirement account, even if you contribute to your employer's plan.

If you're five to 10 years from retirement, it pays to diversify--perhaps with 50% to 85% invested in stocks, depending on your risk tolerance. However, run the numbers and determine how much money you'll need in retirement. Once you've accumulated enough principal to generate an adequate stream of income in retirement, reduce your risk and switch some of those investment dollars from stocks to bonds. By managing your risk in your later working years, you're in a better position to survive a market turndown or the kind of market volatility the economy has experienced recently.

Running the numbers, though, could reveal that you're going to fall short. In that case, put time on your side. Consider working a few more years and delay the day you start taking withdrawals. You're not alone—AARP estimates that more than three-fourths of boomers expect to work full-time or part-time during retirement. That trend may continue as more companies do away with traditional pension plans, says the Employee Benefit Research Institute (EBRI) (August). In addition, EBRI notes that many workers stay on the job to maintain affordable employment-based health insurance.

What else should you do as you approach your golden years?

• Think ahead. How do you want to spend your time, and how much will your dream cost? Don't assume you'll have the same expenses in retirement as you do now. They may be more; they may be less. It depends on your dream: your hobbies, your travel plans, where you wish to live, and whether you'll spend time with--or taking care of--grandchildren.
• Pay off debts. High-interest credit-card debt could take a big bite of your retirement savings at a time when you're supposed to be enjoying your new freedom.
• Cut housing costs. Will your mortgage be paid off? Do you plan to sell the house and downsize to something less expensive? Or are you considering a reverse mortgage to take advantage of the equity in your home?
• Attend a seminar. Retirement-transition seminars are making the rounds in corporate America, particularly as 401(k) plans supplant traditional pensions. Ask questions about the best withdrawal strategy to make your savings last as long as possible.
• Find an adviser. Even if you think you've got a handle on your retirement and investment strategy, seek advice from a reputable professional. Ask for referrals from family and friends.