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7 steps to take at age 59½

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Each year, a few months before your birthday, Social Security sends you an estimate of benefits. It includes your earnings record. Look this over closely and make sure there are no blank spaces for years in which you know you were employed. If there are, or if there appear to be other errors in the amounts listed, contact Social Security toll-free at (800) 772-1213 or through its Web site.

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The same form shows a calculation of annual benefits once you start collecting. It's worth the trouble to compute your own benefits just to make sure that Uncle Sam didn't get his thumbs crossed. The government offers calculators to help you. Using one of these also will let you figure out how much you'd make if you earned more or worked longer.

4. Maximize your savings. Conventional wisdom has said that people a few years from retirement should move money out of stocks and into something safe, such as bonds. These days, with interest rates in the 3 percent to 5 percent range, this advice seems too conservative, increasing the likelihood that you'll run out of money. So for many savers, that means making a new plan. Jeff Gage, a Washington, D.C.-based financial adviser and president of FCA Rochdale, urges his clients to create a spending plan that calculates not only what they will need to live, but also what the potential tax bite is likely to be along the way. "Just changing one variable can make a dramatic difference over 30 years of retirement," Gage says.

Calculating the tax bite may require sophisticated advice, but a good place to start is by dividing your savings into three pots: money on which the taxes have been paid, money on which only capital gains will be due, and money on which ordinary income taxes will be owed. Gage says breaking down your savings in this way makes it easier to decide a number of things, including whether paying taxes now and moving money into a Roth IRA makes sense.

5. Roth or regular? Roth IRAs, and the new Roth 401(k)s, which are now available from some employers, are funded with after-tax dollars, but they grow tax-free. They also don't require minimum distributions at age 70½. Tax laws let you pay the taxes owed at your current tax rate and convert the assets in a regular IRA to a Roth IRA in a process called a Roth conversion. Generally, converting to a Roth is a good idea if you anticipate that your income won't fall much after you retire.

Until now, many people couldn't have Roth IRAs because of their strict income limits, but Roth 401(k)s allow high earners to escape that limitation. "This can be a huge advantage," says Michael Hatlee, manager of retirement services with the Chemung Canal Trust Co., in Elmira, N.Y.

In 2007, all workers over 50 whose companies offer the plan will be entitled to contribute up to $20,500 to a Roth 401(k). Roth 401(k)s also will be available to self-employed individuals. Plenty of financial Web sites help you determine whether a Roth makes sense for you, including one at dinkytown.net.

6. How much will it take? Look hard at your budget and calculate how much you're likely to spend after you're no longer working full time. Bankrate's budgeting calculator can help you figure out your future expenses. Don't forget to add in extra health costs. In 2005, the average 65-year-old spent $4,193 annually on health care, according to the Bureau of Labor Statistics.

7. Take complete inventory. Compute the total amount that you're likely to have to fund your retirement. With the time so close, it's not just a wild guess anymore. There are some calculators that will help you do this, including Bankrate.com's 401(k) retirement savings calculator. Many of these calculators not only estimate savings and Social Security, they also allow you to factor into your plan one-time windfalls such as inheritances and lump-sum pension distributions. And you can calculate how much working at a part-time job will extend your retirement savings. If these calculators don't do the job, talk to your employer. Some employers have access to extremely sophisticated planning tools, so ask your personnel department if you can use one.

Bankrate.com's corrections policy -- Updated: Oct. 1, 2007
 
 
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