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Crafting the perfect retirement roadmap
A roadmap that sets a specific goal and outlines a strategy can help you stay on the right track.
December 5, 2005: 11:27 AM EST
By Walter Updegrave, contributing columnist

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NEW YORK ( - My wife and I -- she's 31, I'm 42 -- earn a combined $65,000 a year. We have about $20,000 invested in retirement accounts and contribute about 5 percent of pay to our 401(k)s and another $400 monthly to Roth IRAs.

We have no debt other than a modest mortgage and our kids' college funds are fully funded. Are we on the right track, or is there something else we should be doing?

-- Michael Detwiler, Cookeville, Tennessee

Hey, I don't think there's any question that you're on the right track. You're socking away money on a regular basis in your 401(k)s. That alone is a cornerstone of building a nice egg.

And you're also funding Roth IRAs, which is a strategy I like not just because it boosts your retirement savings, but because it allows you to benefit from what I like to call "tax diversification."

And as if that's not enough, you've also got a handle on the kids' college expenses. Talk about covering all the bases.

But that doesn't mean that you may not be able do more to improve your situation -- or that you couldn't do a better job of gauging how much progress you're making. Here are two things you ought to consider.

Let's start with those 401(k)s. You didn't mention whether or not your employers match your contributions. But most 401(k) plans do provide an employer match of some sort, and the most common arrangement is that the employer kicks in 50 cents for each dollar an employee contributes, up to 6 percent of the employee's salary.

If that's the case for your plan, then without changing the amount of money you save at all, you and your wife would be able to sock away an additional $325 a year for retirement.

How? Easy. Simply take $650 each year that would have gone into the Roth and instead put it in your 401(k)s. By doing that, you would still save the $650, but pick up the additional 50 percent employer match on that money, thus increasing the overall amount you save.

Now, your 401(k) plan may not offer a match, or if it does, perhaps you and your wife are already taking full advantage of it. But this is certainly something you ought to check out because if you're not contributing at least enough to get the full employer match, you are walking away from free money.

The other thing you and your wife ought to be doing at this stage of your lives is creating a more formal retirement strategy. By that, I mean you should set a specific goal -- namely, how much annual income you'll need in retirement -- and then adopt a savings and investing plan for achieving that goal.

Only by doing this -- creating a roadmap to retirement, so to speak -- can you get a real sense of whether you're making sufficient progress or whether you need to make mid-course adjustments such as saving more or investing differently to increase your odds of achieving a comfortable retirement.

Creating a roadmap

So how do you create such a roadmap?

Well, one way is to use one of the many retirement-planning tools available on the Web, such as our Retirement Planner, which is free, or a service such as Financial Engines, which provides more comprehensive advice, but charges a fee. An increasing number of 401(k) plans also offer this sort of analysis to employees by partnering with companies like Financial Engines, Morningstar or other firms.

Although these tools differ on the specifics, the good ones work pretty much the same way, taking information you plug in, such as the amount you already have saved and how much you intend to save in the future, and then running computerized simulations to project how large a nest egg you might have in retirement and what sort of income that nest egg might generate.

If you're not comfortable doing this sort of number-crunching on your own, you can always hire a pro to do it for you. A competent financial planner should be able to handle this sort of analysis very easily. (For more on choosing a planner, click here.)

And these days major investment firms like Schwab, Fidelity and Vanguard also offer detailed retirement-planning advice as well (For a look at how these firms fared when MONEY road-tested their services, click here.)

To sum up, my advice is that you and your wife first should make sure you're getting as much as you can out of your 401(k)s. Once you're doing that, you should embark on some more serious retirement planning, either on your own through the sorts of Web tools I mentioned or with the help of a financial pro.

Unless you've got a plan that includes a goal and a strategy for attaining it, you'll never know for sure whether you're really on track.

More retirement strategy:

Income for life

How to achieve your dream retirement

Best places to retire


Walter Updegrave is a senior editor at MONEY Magazine and is the author of "We're Not in Kansas Anymore: Strategies for Retiring Rich in a Totally Changed World."

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