The Dolan Retirement 'Catch-Up' Plan

At Any Age

1. Invest the maximum allowable contribution in an IRA. Contributions to both "traditional" and Roth IRAs are limited to $4,000 in 2007, and rise to $5,000 in 2008. If you're over 50, you can contribute an extra $1000 per year from 2007 to 2010.

Deciding whether to open a traditional or tax-free Roth IRA is important. If you think you'll be in a lower tax bracket when you retire, go with the traditional IRA and deduct your contributions. You avoid taxes now while you're working and, if you are in the lower bracket as you expect, you pay lower taxes when you retire and withdraw funds from the IRA.

If your adjusted gross income is less than $114,000 ($166,000 for married couples filing jointly) and you can live without the immediate tax deduction, we think a tax-free Roth IRA is the better choice for most people.

With a Roth, you don't get to deduct the money you put in from taxes this year, but the earnings completely escape taxation, even when you start taking distributions. You are not required to start taking distributions from a Roth at age 70-1/2, so the earnings may continue to grow tax-free and you may even continue to make contributions as long as you are earning income. This is a very good deal for a population that is expected to live to a ripe old age.

2. Be realistic. Don't expect your retirement nest egg to automatically produce the 9% to 10% average annual returns that some financial planners and pension benefits managers still claim is the norm. In these uncertain times we'd rather you err on the low end and estimate a maximum of only 5% to 6% a year, an average return that factors in the economic roller coaster we've all been riding, as well as the unimpressive track record of 401(k) plans. Assume inflation will average somewhat under 3% a year.