(MONEY Magazine) – STARTING OUT 20s and 30s The greatest asset you have right now isn't money--it's time.

At this stage of life, the pressures of establishing your career and family are paramount--and retirement is far, far away. But your early years are key, and the small choices you make now can have a profound effect on your later life. Whatever seemingly insignificant sums you can put away these days have plenty of time to grow into a significant nest egg over the next several decades. Unfortunately, many people don't take full advantage. Only a third of workers in their twenties and thirties max out their 401(k) plans--which means they may be missing out on some company matching, a benefit that is basically free money.

So start with the basics. Eliminate your debt. Sign up for a 401(k) or IRA and contribute something to it every month. Get in the habit of "paying yourself first" with every paycheck; set a small amount aside immediately, before devoting the rest to shelter, clothing, food and fun.

Many beginners err on the side of conservatism, especially in employer-provided plans that offer a choice of investments. A rate of return so low that it can't keep pace with inflation--that's the real risk of playing it too safe. With a very long time horizon, you can invest aggressively and ride out the volatility of higher-risk asset classes. So put virtually all of your savings into stocks, including healthy doses of foreign stocks and small-caps.

GETTING AHEAD

--Once you have opened whatever deductible tax-free retirement accounts you qualify for, consider opening a brokerage, mutual fund or Roth IRA account. Fund it with a payroll deduction or automatic debit plan.

--Don't blow windfalls like inheritances and bonuses entirely on vacations and luxuries. Sock away at least a part of the money.

--Buy a financial planning software package such as Quicken or MS Money to help you get a grip on your complete financial picture.

--For helpful tips on getting started with saving and investing, check out www.kobliner.com, a financial site geared to people in their twenties and thirties.

SUGGESTED ALLOCATION

Large-cap domestic equities should be the anchor of your portfolio, but diversify with small-caps, foreign stocks and bonds.

40% LARGE-CAPS 25% FOREIGN 20% SMALL-CAPS 15% BONDS/CASH

Funds to fill out your portfolio

FUND NAME THREE-YEAR MIN. INVESTMENT TELEPHONE RETURN[1] REGULAR IRA

Vanguard 500 Index 13.2% $2,000 $1,000 800-851-4999

Tweedy Browne Global Value 15.0 2,500 500 800-432-4789

Liberty Acorn -- 1,000 25 800-922-6769

Notes: Data as of Jan. 31. [1]Annualized. Source: Morningstar.

TO DO NOW

1 Pay off all your credit-card debt and student loans as soon as you can. Interest compounding is a vicious wealth killer.

2 If your employer offers a 401(k) plan, sign up and contribute the max, or at least as much as your company matches.

3 If your employer doesn't offer a 401(k), see if you qualify for a deductible IRA.

4 Put aside three months' worth of rent and expenses in a money-market fund or short-term CD as an emergency fund.

5 Allocate your 401(k) or IRA toward growth. Don't be too conservative at this early date or you'll miss out on maximum returns.

RESOURCES

--American Association of Individual Investors (www.aaii.com)

--American Savings Education Council (www.asec.org)

--The Green Magazine Guide to Personal Finance by MONEY's Ken Kurson

PRIME TIME 40s and 50s Make the most of your earning and saving power years.

Most people are at the peak of their earning potential during their forties and fifties, but they also have a laundry list of financial pressures to attend to besides retirement planning--children to be educated, parents to be cared for, homes to be financed. Fortunately, you still have a good 15 or 20 years till retirement, which means that you can continue to be an aggressive investor. Consider meeting with a financial adviser to examine how you can better balance all of your many goals. Start thinking about what you're looking for out of your retirement; that way you'll know if you're on track to get there. The traditional rule of thumb--that in retirement you'll need 70% of what you make now--may be based on several outdated assumptions. With today's flatter tax system, for example, you may not actually be in a lower tax bracket when you retire. And you may not save as much on commuting, lunches out and clothes as you expect if you travel or take up new hobbies. After accounting for inflation, many advisers now tell clients to assume that they will need 100% of their pre-retirement income because retirement lifestyles are hard to predict. Head to the retirement calculator at our website (www.money.com) to figure out whether you're on track to save enough to fund that income.

GETTING AHEAD

--When changing jobs, don't overlook what happens to your retirement benefits. Often you must wait to become eligible for your new employer's plan--meaning you lose out on valuable time for contributing to your nest egg. Factor this in when negotiating a new salary package.

--Don't cash out your 401(k) when you switch jobs or you'll face a 10% early-withdrawal penalty. Instead, roll it into an IRA or your new employer's 401(k)--or keep it where it is.

--Reassess your homeowners policy and make inflation adjustments if necessary. Make sure that you have enough to cover the cost of rebuilding your home in case of disaster.

SUGGESTED ALLOCATION

As you near middle age, it's important to stick with stocks, but consider paring down on small-caps and adding to bonds.

20% BONDS/CASH 45% LARGE-CAPS 15% SMALL-CAPS 20% FOREIGN

Funds to fill out your portfolio

FUND NAME THREE-YEAR MIN. INVESTMENT TELEPHONE RETURN[1] REGULAR IRA

Harbor Capital Appreciation 19.6% $2,000 $500 800-422-1050

Putnam Intl. Growth 19.5 500 500 800-225-1581 Fremont U.S. Small Cap 27.6 2,000 1,000 800-548-4539

Notes: Data as of Jan. 31. [1]Annualized. Source: Morningstar.

TO DO NOW

1 Continue contributing to your 401(k) and IRA accounts.

2 Set retirement goals. How much, in today's dollars, would you ideally like to have annually after retirement?

3 If you change your marital status, have another child, or otherwise alter your financial situation, review and update your goals.

4 It's not too early to begin estate planning. At the very least, make sure you have a will.

5 Consider how your assets are allocated across your whole household. Do your choices make sense when viewed together with your spouse's?

RESOURCES

--Financial Engines (www.financialengines.com)

--T. Rowe Price Retirement Planning Worksheet (www.troweprice.com/retirement/retire.html)

--Quicken.com Retirement Planner (www.quicken.com/retirement)

HOME STRETCH 55 to 65 Fine-tune your goals and strategies.

Now it's time to take stock, ponder some lifestyle choices and maybe make some trade-offs. At what age will you ultimately retire? Will you work part time? Will you move? Will any of your children still be in college? Do you expect your parents to need support? Are you in good health? Do you expect to be healthy years from now?

Your Social Security benefits can be one factor in figuring out your optimal retirement age. Since the payout is based on your highest-earning 35 years, working a bit longer could substantially up the average. Check with the Social Security Administration about your forecasted benefits and make sure the agency has your correct earnings history.

Shortly before retiring, you must choose among your employer's retirement plan payment options. Meet with your human resources representative to review your choices and their tax implications. Will you select monthly payments or a lump sum paid into your IRA account? Also, if you want your spouse to waive the right to receive benefits after your death (an option that provides higher payments during your lifetime), this is the time to decline your plan's qualified joint and survivor annuity provision. Some advisers tell husbands but not wives to elect the QJSA because women tend to outlive men.

GETTING AHEAD

When retirement is a year away, take some more detailed steps to make sure your transition is a smooth one:

--Contact former employers from whom you may be entitled to retirement benefits; ask for an estimate of benefits.

--Calculate a detailed retirement budget, using last year's expenses as a guide.

--Make a list of your assets, including what benefits are available to you and your spouse if one of you dies.

--Consider buying long-term- care insurance to guard against future nursing-home costs. It's expensive but far cheaper than trying to get coverage once you're already retired.

SUGGESTED ALLOCATION

As you approach retirement, you need to stay heavily invested in stocks but favor more stable large-caps.

25% BONDS/CASH 75% LARGE-CAPS

Funds to fill out your portfolio

FUND NAME THREE-YEAR MIN. INVESTMENT TELEPHONE RETURN[1] REGULAR IRA

T. Rowe Price Equity Income 9.0% $2,500 $100 800-541-4975

Safeco Equity 7.2 1,000 250 800-624-5711

Vanguard Total Bond Market Index 6.4 3,000 1,000 800-662-7447

Notes: Data as of Jan. 31.[1]Annualized. Source: Morningstar.

TO DO NOW

1 Check on your Social Security benefits. Request an Earnings and Benefits Estimate Statement (Form SSA-7004) from the Social Security Administration's website (www.ssa.gov) or call 800-772-1213.

2 Pinpoint your desired retirement age. If you retire early, you don't have to start drawing Social Security then--the longer you wait (up to your so-called normal retirement age), the higher your benefits.

3 Look at rollover strategies for your 401(k). Do you want to roll it into an IRA or convert it to an annuity (watch out for high annual fees)?

RESOURCES

--The Financial Planning Association (www.fpanet.org)

--The National Association of Personal Financial Planners (www.napfa.com)

--You're 50--Now What: Investing for the Second Half of Your Life by Charles Schwab

MAKING IT LAST The retirement years Smart drawdown strategies are key.

Even in retirement, you still need to have some of your money invested in equities, to keep it growing and to protect against inflation. After all, if you're in your sixties, you could be drawing on those funds for up to 40 years. A professional adviser can help you figure out how much and from which account to draw monies.

It's critical to be aware of tax implications when deciding which funds to draw from first. If you have a Roth IRA, use that money first, since it's not taxed. Next use any funds that you have in regular brokerage accounts--they're taxable, but as long as you've held those investments for more than a year, they'll be taxed at the capital-gains rate, which is usually lower than rates for ordinary income.

Leave your regular IRA untouched for a few more years if you can--the longer you put off withdrawing, the longer that money can grow. But don't wait too long. You can start withdrawing from your IRA anytime after the age of 59 1/2, but you must start taking a minimum withdrawal by April of the year after the year you turn 70 1/2. Failing to do so is an expensive tax mistake. "If your minimum required distribution was $1,000 and you took out only $500, the IRS would take 50% of the rest--they'd take $250," says Sylvia Kwan, a financial planner with Financial Engines.

GETTING AHEAD

--Draft a durable power of attorney to allow your spouse or child to make financial decisions for you. Also consider a health-care power of attorney.

--It's more tax-efficient to make charitable gifts before you die. That way you get an income tax deduction, as well as reduce the size of your estate. For information on charitable giving, contact the Council on Foundations (www.cof.org) or the Council of Better Business Bureaus (www.bbb.org).

--If you own your home, you can tap that equity for living expenses, either by trading down to a less expensive place or by taking out a home-equity loan or a reverse mortgage.

SUGGESTED ALLOCATION

The big payoff. Put approximately half your money in bonds to pay you income and half in stocks to keep what's left growing.

5% CASH 40% LARGE-CAPS 55% BONDS

Funds to fill out your portfolio

FUND NAME THREE-YEAR MIN. INVESTMENT TELEPHONE RETURN[1] REGULAR IRA

Schwab 1000 13.2% $2,500 $1,000 800-435-4000

Fidelity Spartan AZ Muni Income 4.8 10,000 N.A. 800-343-3548

Pimco Total Return 6.5 2,500 1,000 888-877-4626

Notes: Data as of Jan. 31. [1]Annualized. Source: Morningstar.

TO DO NOW

1 Work with a financial planner or accountant to figure out an optimal withdrawal plan: which funds to draw on for daily spending, which to leave untouched for growth. And don't assume you're going to die at 80. Review your projections every five years.

2 Apply for Social Security benefits at least three months before you want to start receiving payments. Elect a Medicare plan when you file.

3 If you are over age 75 and expect your remaining assets to exceed the estate-tax exemption ($675,000 in 2001), consider making gifts to family members to reduce the size of your estate. You can give up to $10,000 per person a year without triggering the federal gift tax.

RESOURCES

--American Association of Retired Persons (www.aarp.com)

--ThirdAge, a website devoted to seniors (www.thirdage.com)

--You're Retired, Now What by Ronald M. and Murray Yolles

ADDITIONAL REPORTING BY PATRICE D. JOHNSON