Now is the last opportunity to really sock away retirement funds. Try to boost your retirement savings goal up to 20 percent or more of your income. 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 ranges from $1,000 in 2002 to $5,000 in 2006 and beyond (adjusted for inflation).

You also can put catch-up amounts into your IRA, though the amount decreased to only $1,000 by 2006.

Once you maximize contributions to your employer’s plan, and IRAs if you qualify, invest additional money into annuities or investments that don’t create much taxable income.

Investing at this stage typically needs to be more cautious. Planners recommend shifting a portion of your higher-risk investments into less volatile (and usually lower returning) assets such as bonds. But planners also recommend maintaining a substantial 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 also time to start focusing on what kind of retirement you want and what financial resources you have to pay for it. Do you plan to stay home and garden, or travel the world? Work part time? Go back to school? Start a new hobby? Move to a vacation spot?

The choices are many and so are the costs associated with them. Planners 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—but watch out for 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. Expenses also can vary during phases of retirement: typically high at first (all that travel and fun), lower in the middle, then higher toward the end as health declines.

Calculate what realistic financial resources you’ll have to pay for your retirement. Also, begin thinking 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?
What if you have saved little toward retirement yet you want to retire soon? Your options are more limited at this stage.
• Reduce expenses and invest the savings
• Increase income through a second or better-paying job
• Maximize retirement plan contributions
• Invest more aggressively, but not recklessly
• Postpone retirement or retire part- time
• Make smart withdrawals from retirement accounts once you retire

Retiring Early?
Want to retire early—that is, before “normal” retirement age? The big challenge—a problem most of us are glad to have—is that we’re living longer. Retire in your mid-fifties and you could easily live 30 years, maybe 40 years, in retirement.

For that, you’ll need a larger nest egg than if you retired later, yet you’ll have fewer years to build that nest egg. Early retirement means smaller monthly, and potentially smaller lifetime, Social Security benefits. The same applies to traditional pension plan benefits.

You may need to replace corporate benefits you lose, such as life insurance and, if you work part-time or on your own during retirement, disability insurance. You also may need to come up with health insurance to cover the gap until you qualify for Medicare. Retiring before age 59 1/2 also can present tax problems. And you may still have major expenses to fund, such as a mortgage and college.

The challenges of early retirement are not just financial, however. What are you going to do all those years? Many CFP professionals find their retired clients returning to work, often part time, out of boredom.

So although early retirement may sound appealing, be sure you’ve thought through the financial and non-financial issues before making the plunge.

CAUTION: While still in your 50s or early 60s, consider buying long-term care insurance. It’s more affordable the earlier you buy it. Failing health requiring long-term care is often the biggest single threat to a retirement nest egg. Medicare does not pay for extended long-term care. Without insurance, you’ll have to pay out of pocket—or become destitute in order to qualify for Medicaid assistance.