Never Too Late to Save

There are no great mysteries about how to build the kitty you will need to live happily ever after. Spend a little less. Save a little more. Work a little longer. Yet most folks panic when they think ahead, usually because they've put off any serious planning until about age 50. By then time is running short. Giving up seems like the only option. It's not. Here are some painless steps that work if you stick with them:

?MAX OUT YOUR 401(K) You've heard it before. But what you may not know is that for the 49% of the working population eligible for a 401(k) or a similar employer-sponsored plan, taking that single step is all they need do. End of worries. Yet only 82% of eligible employees participate, and few of those go the limit.

Through Social Security benefits, private pensions and personal savings, the typical working baby boomer is accumulating enough assets to replace just 60% of his or her preretirement income, according to a Fidelity Investments survey. The firm estimates that to retire happily, an 85% replacement rate is needed, and it says boomers can close the gap simply by exploiting their 401(k). "Starting at 62, you may be in a little trouble," cautions Jeff Carney, president of Fidelity Personal Investments. "But at 50, you're in very good shape."

Lawmakers are mulling steps to require employers to: 1) automatically enroll new employees in their 401(k) plan; 2) set contribution levels high enough to get all the company match; 3) increase employee contributions in synch with pay raises; 4) put the money in one-decision lifestyle funds that start aggressive and scale back risk as you approach 65. Why wait? You can do these things right now.

?PLAY CATCH-UP If you are 50 or older, you may stretch annual 401(k) contributions to $20,000 from $15,000 and IRA contributions to $5,000 from $4,000. Where will you find the money? Dedicate your next pay raise, or use the money you save when a car loan is paid or a child-care expense ends.

In 2010 anyone can convert a traditional IRA (whose distributions are taxed as ordinary income) to a Roth IRA (whose distributions are tax free and may be passed to heirs). Converting may not make sense if you are in poor health or do not want to bequeath your IRA. You will have to pay tax on the whole amount over two years. But if you can pay the tax from other funds, converting is a no-brainer.

?GET AUTOMATIC For saving to become truly painless, you have to automate the process. Set up recurring contributions to an IRA or other savings account directly from your checking account or paycheck. "You'll adjust your spending when the money isn't there," says James Dew, a financial planner in Scottsdale, Ariz. While you're at it, automate your bill paying too.

?SHED DEBT Start with credit cards, then auto loans. Move on to your home-equity line of credit and, last, your mortgage. That isn't easy, and automatic payments can really help. So does thinking of it this way: if you have $10,000 in credit-card debt and are paying only the minimum, adding $1 a day to the payment will save you $12,615 in interest expense and retire the debt 35 years earlier, according to The Late Saver's Guidebook nefe.org) The sooner you stop paying interest, the more you will save.