This post is part of the Money Matters for All Ages project. The complete guide can be found at My Two Dollars.

You’re in your 50’s and all of your friends are starting to talk about their plans to take an early retirement and moving to the beach house in Florida they always dreamed about. You do the math and choke when you realize that if you want to retire at 65, you will need $1 million to produce a $40,000 income for the 25 years.

You’re not alone. According to The Motley Fool:

• 74% of baby boomers say they’re somewhat or very prepared financially for retirement. But just 8% have completed 10 basic steps for retirement preparation.
• Among older Americans, 90% are planning to rely primarily on Social Security for their retirement income, but Social Security supplied just 39% of retirement income for people 65 or older in 2001.
• About 90% of Americans say it’s somewhat or very likely that they’ll meet their retirement goals, but 60% were surprised to learn that $1 million in savings will safely provide only about $40,000 in annual retirement income.

What Can You Do?

The obvious choice is to delay retirement and work as long as you can. After that, you can still work part-time to supplement your income to reduce the amount of money you need to withdraw from your retirement accounts. That will keep as much money as possible in investments, which will continue to compound over your 20 to 30 years of retirement.

The federal government is well aware of the under-preparedness of Americans and offers people 50 and over the option to contribute more money to their retirement plans.

• 401k: In 2008, $25,500 pre-tax dollars can be contributed to your 401k a year if you are 50 or over, versus the standard $15,500 maximum 401k contribution.
• IRA: In 2008, $6,000 can be contributed to your Traditional or Roth IRA if you are 50 or over, versus the standard $5,000 maximum IRA contribution.

You can’t withdraw funds from your retirement plan without a major tax penalty until you are 59 ½ years old, and you might plan to work a few extra years longer beyond that age to keep your investments working to the max. Therefore, you’re safe to go heavy on a diversified stock portfolio.

This may seem contradictory to what most personal finance advisors advise, which typically instruct those nearing retirement to go heavier on fixed-income investments that are less risky. Typically the recommendation is to subtract your age from 110, and that will give you the amount you should devote to stocks. 110 – 50 = 50% allocation to stocks.

But the fact is if you have 10 years of investing ahead of you, stocks will safely give you the best returns. The Motley Fool’s rules for asset allocation are as follows:

1. Any money you need in the next year should be in cash. In other words, an interest-bearing money market or savings account.
2. Any money you need in the next two to five years should be in a safe fixed-income investment, such as certificates of deposit or bonds.
3. Any money you don’t need in the next five to 10 years is a candidate for the stock market, which will produce 10% annual returns over 10 years.

Lastly, you may also want to consider downsizing and reducing your expenses as much as possible. This will mean less money needed at retirement and more money you can contribute now towards your tax sheltered retirement plans.

Millionaire Money Habit: Funding your retirement for 25 or more years can be very costly and requires a sound plan. While $1 million will produce $40,000 in annual income for 25 years, that’s in today’s dollars. A 35-year-old today would need $3.25 million for the same relative income when inflation is taken into consideration. If you want to enjoy a comfortable retirement, don’t put retirement planning off another day.

Be sure to read the entire Money Matters for All Ages series. The Complete Guide can be found at My Dollar Plan.

Weren’t the holidays grand? You saw family and friends you haven’t seen in a long time, had some great holiday parties, and enjoyed seeing the smiles on people’s faces as they unwrapped their gift from yours truly.

As you were fighting the crowds to get the last Nintendo Wii and treated yourself to a nice lunch while at the mall, you may have stopped to think that you were probably spending way too much money. But, heck, it’s the holidays and ‘tis the season to give. Right?

Well, now it’s time to face the facts. Most people who did not budget for their gifts will likely be a little shocked when they receive their credit card bills. You might even think, “There must be a mistake somewhere. I couldn’t have possibly spent this much.” Unfortunately, all of those little expenses added up to one big one.

Not to worry though. Let’s figure out a plan to recover from a debt hangover.

If you are in a bit of your own credit crunch, the important thing is to not ignore the problem, or it will just get worse. We want to eliminate the credit card debt as quickly as possible; otherwise that $250 video game console will end up actually costing you $400 after months of accrued interest payments.

With that in mind, don’t just pay the minimum balance or it will take years to pay off the debt. Instead, create a plan to get the balance back to $0 in three to six months time. Here’s how:

• Crunch the Numbers: Figure out how much money it will cost you to pay off the balances in three to six months.
• Pinch Your Budget: Cut out some discretionary spending in order to apply more cash towards paying off your bill. Every cup of Starbucks counts.
• Get Extra Cash: Are there any gifts you receive that you would prefer the cash instead? Or, consider one of the ways to Make an Extra $100 a Month to increase your cash flow.
• Negotiate Better Terms: Take five minutes to call your credit card company and tell them you are thinking about transferring your balance to another credit card company for a better rate. They want to keep your business and will negotiate with you. If not, ask to speak to a supervisor.
• Transfer Your Balance: 0% APR and free balance transfer offers can be found. Got to Bankrate.com to compare credit card offers, and consider transferring your balance to one of those cards to remove the interest payment.

Once you’ve looked at the numbers and created a plan to pay off your bills from the holiday spending frenzy, take some time to plan ahead for future gift giving seasons. You may want to open a separate savings account to regularly set aside money for gifts, or it may just require better budget planning the next holiday season. Either way, it’s best to be prepared in advance in order to avoid the post-holiday spending hangover in the future.

Millionaire Money Habit: It is difficult to join the millionaire club if you find yourself constantly in debt. To avoid increasing debt, it is important to set an appropriate budget in order to avoid your expenses exceeding your income. Stay out of debt and you will increase your ability to accumulate wealth.

Here is a list of some of the best personal finance articles from around the web. To kick start your week, spend some time digging through the Millionaire Money Habits archives and the links below to improve your financial literacy.

Investing:

• Personal Finance Blogosphere Best of 2007 at Moolanomy
• Pros and Cons of Investing in Target-Date Retirement Funds at My Two Dollars
• Interview with Investing Author Richard A. Ferri, CFA at The Dough Roller
• Wise Investing Made Simple Review Part 1: Markets and Performance at I’ve Paid for this Twice Already . . .
• A Little-too-Late Advice on Building Wealth at Brip Blap

Credit & Debt:

• How to Kiss Your Debt Goodbye This Year at Gather Little by Little
• The 401k Debit Card: Probably One of the Worst Ideas Ever at Generation X Finance
• Credit Reports: Interesting Equivocations at Mrs. Micah: Finance for a Freelance Life
• Getting Organized: Monitoring Your Credit Report at My Dollar Plan

Taxes:

• Family Feud on taxes at Rocket Finance
• The Rise and Fall of the Tax Kicker Refund Check at beingfrugal.net.net

Spending and Saving:

• The Economics of Feeding a Teenage Boy at DebtFREE-Revolution
• Addicted to Spending? at Plonkee Money
• The One Month Coupon Strategy: A Really Clever Way to Make Coupons Worthwhile at The Simple Dollar

Work and Life:

• 10 Signs It’s Time For a New Job at Cash Money Life
• Start a Money Club at Credit Withdrawal
• Worst Inflation Rate in 17 Years at Blueprint for Financial Prosperity

Financial Psychology:

• I Just Can’t Look Anymore! at Single Guy Money

Millionaire Money Habit: To build wealth, you need to perpetually improve your financial literacy. Digest as much information as possible and stick to a plan that works for you. In addition to the articles above, browse through the suggested readings listed at the very bottom of this website’s page, and be sure to subscribe to our RSS feed or by email.