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Last-Minute Retirement Planning

How to plan for a retirement that is a few years away.

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The secret to a cozy retirement is saving early and often, as soon as you start working. (It helps to also have that money invested in a rising financial market.) But not everyone has the inclination—or the extra cash—to do this when their careers are just starting out, or when the kids are in school and money is tight, or when the house and car need repairs. Many people find themselves 15, 10 or even five years from retirement with no savings and no idea of how to support themselves in retirement.

This is definitely not the time to get discouraged, it's a time for action. There are things you can do to build your retirement coffers. Call it emergency retirement planning, here's how to get started.

Sign Up for the 401(k) Plan

If your employer offers a 401(k) that you've been avoiding, sign up immediately. Attempt to contribute at least 10% of your pre-tax income. If you don't have a 401(k) available to you, open an Individual Retirement Account (IRA) with a plan to fund it on a regular basis. The large, low-fee fund companies Vanguard, Fidelity and T. Rowe Price allow you to open an IRA with a low minimum balance if you agree to make regular contributions.

Take Advantage of Catch-Ups

The IRS caps the amount that people can contribute to a 401(k) plan each year. But if you are age 50 or older, you get to contribute even more. This is called “catch-up contributions.” In 2011 and 2012, the catch-up contribution amount is $5,500 for 401(k)s, 403(b)s and governmental 457(b) plans, and $1000 for IRAs and Roth IRAs. It may not sound like much, but an extra $1000-$5000 invested each year can really impact your nest egg.

Invest According to Your Comfort with Risk

There are all sorts of theories about how to choose the right stock/bond ratio. One popular piece of advice is to subtract your age from 100 and invest that amount in stocks.This would leave the average 20-something with more than 20% of her portfolio invested in bonds. Most 20 year olds would be willing to take on more risk than that, in exchange for the higher potential returns offered by stocks. And even at age 50, having half of your portfolio in bonds may be a bit more cautious than necessary. Forget rules of thumb, and consider your personal tolerance with risk.

Reconsider the College Fund

When forced to choose between funding your children's education or your retirement, the answer may be easier than you think. Retirement wins, hands down, for several reasons. Although we'd all make the ultimate sacrifice for our kids, college costs can be subsidized by low-interest loans, retirement cannot. And the more we sacrifice today, the more likely we are to be dependent on our kids later in life.

Cut Back on Incidentals

Everyone should have a reliable budget to assess their monthly income and expenses. Revisit your budget often to reconsider “essentials” vs. “nice to haves.” It may sound trite, but becoming budget-minded can be a fun challenge. (Compare the results of shopping at a discount retailer to a luxury retailer.) The money you save can be routed directly to your retirement account.

Bank Raises and Bonuses

The leaner your budget, the less you will need extra income when you get a salary raise or annual bonus at work. Send these funds directly into your 401(k) or other retirement investment account and that bonus may pay back many-fold in the future.

Downsize Your Digs

While this should not be a rash decision, depending on how close you are to retirement, a new location may be a good idea. If you live in an area where home prices have appreciated, you may want to consider retirement in an area with lower taxes, a lower cost of living and less expensive housing.

Do an Annual Check-Up

Evaluate your 401(k) portfolio each year to make sure you are still comfortable with your investment choices. This does not mean you should try to chase last year's most successful investments—it's better to stick to a long-term investment plan and ignore the daily movement of the market. But you may need to adjust your holdings to take on more risk in an attempt to increase your profits, or you may find you are more comfortable keeping your existing balance stable.

Re-set Your Retirement Clock

If all else fails, you can always push retirement back a couple of years, or consider a career downsizing and take on part-time or consulting work in the years before you actually retire. What's another year or two of work if it means securing your financial future?

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