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Q: I am Almost 63 Years of Age and Thinking of Retirement. What Should I Do at the Present Time to Make this a Reality in 2 or 3 Years? I am a Registered Nurse Working Full Time in a Hospital.

A: Retiring in two to three short years from now means you’ve got to ensure that your financial affairs are in good shape, and that you will have enough money on hand to last you another two or three decades. Many financial planners create plans for their clients on the assumption that the client will live until 90 or 100 years old. So you have to consider whether, if you retired at age 65 or 66, you would have enough money to last for potentially another 30 years.

Max Out that Retirement Plan at Work

Start by looking at what you’ve saved in your retirement plan at work. If you haven’t been aggressively saving in a 401(k) or 403(b) plan, by all means start doing so. Perhaps your employer offers a match to boost your retirement plan. Under federal law, most employees can put up to $16,500 into a qualified retirement plan in 2010. However, since you are over 50 years of age, you can also put into another $5,500 in “catch up” payments if you’ve been a late starter, in terms of saving. You can also sock money away into an IRA, or Individual Retirement Account. The 2010 limit for regular IRAs and Roth IRAs is $5,000, plus another $1,000 in allowable contributions for those 50 and above. Assess also any pension income or retirement benefits that will be provided directly by your employer. Then find out how much money you will be entitled to from Social Security. You can find out your expected Social Security payments by visiting the Social Security Administration’s website (http://www.ssa.gov).

Two Steps To Assessing Your Retirement Readiness

In summary, to make sure you are on track to retire when you want, you should follow these two steps:

Step 1: Calculate Your Retirement Needs
Think about what how much money you’ll need in retirement, on a monthly and annual basis. Take into account your projected monthly expenses, any debts you’ll have, along with the possibility of healthcare or medical costs, travel, as well as inflation. A good tool to use is the “Ballpark Estimate” retirement calculator from the American Savings Education Council at: http://www.icief.org/retirement/illustrations/ill_ballpark.html

Step 2: Estimate Future Benefits
After consulting your Human Resources Department or taking a look at any employer-provided pension income you may be expecting, go get an estimate of your Social Security benefits at http://www.ssa.gov./estimator.

If you don’t like what you see in the results, all is not lost. You have the option of working a bit longer, perhaps investing slightly more aggressively if you are comfortable doing so, or even using products like annuities that can offer you a steady income stream or make up for any financial shortfalls you may face.

Related articles

• Making the Most of Your Social Security Benefits (askamoneyexpert.com)

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Q: I am a 27-Year-old Speech-Language Pathologist and I Currently Do Contract Work for a School System. Even Though I Am Not Sure If I Will Be With My Company Next year, Should I take Advantage of Their 401(k) or Open an IRA or Roth IRA?

A: By all means, start contributing to your company’s 401(k) plan immediately. Even if you leave the company or take another job elsewhere, you will have access to your 401(k) funds and can transfer them later – if you decide to – into an IRA. There are six big benefits to taking advantage of your 401(k) plan right now.

Lower Your Tax Bill
First, you will immediately lower your taxable income and start paying fewer income taxes to Uncle Sam. This is because you contribute to a 401(k) plan right out of your paycheck, on a pre-tax basis. By contrast, you fund an IRA with after-tax dollars. Your ability to take an IRA tax deduction is based on several factors, including your income.

Matching Contributions
Additionally, you may get additional retirement dollars from your employer, if your company offers any kind of matching program. Some companies match dollar-for-dollar, up to a certain percentage of your salary. Others offer 50 cents on the dollar. No matter how much or how little your company match might be, it’s still a great benefit, because it’s free money.

Flexibility
Thirdly, since you are a contract worker, you may be better off initially using a 401(k) plan, instead of an IRA, because the 401(k) generally offers you more flexibility and options to access monies without penalty. For example, you can take a loan from your 401(k) if necessary. But you generally can’t take loans from IRAs. You can take distributions from IRAs, but if they aren’t paid back within 60 days, the IRS imposes a 10% penalty, and you pay ordinary income taxes on the money too.

Higher Contribution Limits
401(k) plans have higher contribution limits than do Individual Retirement Accounts. Under federal law, the maximum amount you can put into a 401(k) in 2010 is $16,500; individuals age 50 and older can stash away an extra $5,500 in a 401(k). The limit is subject to cost-of living increase after 2010. The maximum you can put into an IRA in 2010 (either a regular IRA or a Roth IRA) is $5,000; those 50 and older can contribute an additional $1,000 into an IRA. The ability to sock away substantially more money is a 401(k) is a huge benefit that should be taken advantage of whenever possible.

Disciplined Investing
Making investments through your 401(k) plan is a great way to make you consistent and dedicated to the process of investing. Because the money is taken automatically out of your paycheck, you might not think about it as much and you won’t be as tempted to just stop investing when the markets get volatile. All too often, when people put their money into Individual Retirement Accounts, at the first sign of trouble on Wall Street, they simply stop investing. That’s not a good way to invest.

Ease of Implementation
As a final note, there’s also the speed of execution factor, which shouldn’t be ignored. You can literally go enroll in that 401(k) plan today. Just pop over into your Human Resources office and fill out some brief paperwork. You’d have to do quite a bit more homework and paperwork to open an IRA. Sometimes, when things take too long and seem like to much work, we tend to procrastinate and not get them done. That won’t be the case with your 401(k).

You stated that you’ve already been working at your company for more than a year. So now is a great time to get into the habit of saving early and often for retirement. The 401(k) plan offered by your employer will help you do just that.

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