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?
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