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retirement

Last-Minute Retirement Saving

If retirement is approaching and you haven't saved much, there still is time amass a decent-sized nest egg.

I'm 50 and still haven't saved much for retirement. What can I do to catch up?

The younger you are when you start saving, the less money you'll have to set aside to reach the same goal. That's great in theory. But what if you'd been spending all of your money on college and a mortgage and hadn't started saving for retirement until later? There's still plenty of hope for you.

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First, make the most of catch-up contributions. The IRS has special rules to help people in exactly your situation. Instead of an annual 401(k) limit of $15,000, workers age 50 and older can contribute $20,000 to their 401(k)s in 2006. You'll also be able to contribute an extra $1,000 to your IRA -- giving you a total contribution limit of $5,000 for 2006. Start maxing out these retirement plans now, and you still can amass a decent-sized nest egg by the time you retire. Saving $25,000 each year will give you more than $700,000 in your 401(k) and IRA by the time you're 65, if your investments return 8% per year.

That probably won't cover your entire retirement, but it's a step in the right direction -- especially when added to the money you've already saved through the years. Invest any additional money in a taxable account that you use to buy and hold stocks or funds for the long term, minimizing the annual tax bill. Then add extra money to your savings whenever your income increases or your expenses shrink -- if, for example, you finally finish paying the college bills, no longer support your kids and can cut back on your life insurance.

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And there's an easy way to amass even more money: Don't retire at age 65. Even working just part-time after that will do wonders for your retirement savings. You won't start tapping your retirement savings for a few more years, you may even be able to keep saving more money, and your nest egg will need to last for fewer years. According to a study by T. Rowe Price, if you earn $100,000 at age 65, have $500,000 in savings and save 10% of your salary each year, working for just two extra years can increase your retirement income by 26%. Working for four extra years can increase your retirement income by 59%.

For more information about retirement saving, see How Much Is Enough?

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