Fretting over retirement? Take action now

With Social Security’s future uncertain and Americans as a whole not saving enough, many folks’ retirement prospects are looking pretty grim. Yours doesn’t have to be, though, if you get your golden-year ducks in a row now.

One good idea is to take full advantage of IRAs and your employer-sponsored retirement plans. By socking away more money in tax-advantaged accounts, you can reduce your taxable income, too. Here are the details:

• IRAs. The contribution limits have increased to $4,000 per year for traditional and Roth IRAs, increasing to $5,000 in 2008. If you’re 50 years old or older, you can make an additional $1,000 contribution to your IRA.

• 401(k), 403(b) and 457 plans. You can contribute up to $15,000 in 2006 ($20,000 if you’re 50 or older). If your employer contributes any matching funds to your plan, it’s usually a no-brainer to contribute at least enough to receive the maximum match – that’s free money.

Note that there are some restrictions and rules governing contributions to retirement plans. If your annual income is in the six-figure range, for example, your allowable contribution might be reduced.

The more you save and invest for retirement now, the more secure your future will be. Now is the time to adjust your retirement plans:

• If you have money automatically transferred to a retirement account, increase the amount of your contributions.

• If you need to open an IRA, do it – don’t put it off. (You can learn more about them, including differences between traditional and Roth IRAs, at www.fool.com/ira and www.irs.gov/ retirement/participant/index.html.)

• If you aren’t sure your retirement plan is on track, find out.

• If you’re not comfortable making financial decisions on your own, find an objective financial professional to advise you – one who won’t try to sell you anything. (We offer tips on finding an adviser at www.fool.com/fa.)

You’ll find more guidance in “Retire Worry-Free: Money-Smart Ways to Build the Nest Egg You’ll Need” by the editors of Kiplinger’s Personal Finance (Kaplan Business, $18).

Ask the Fool

Q: Did I hear correctly that I can get health insurance for my pets? – H.D., Watertown, N.Y.

A: You did indeed, and you should consider it, lest you end up one day having to decide whether to spend thousands of dollars to save Fluffy’s life. Pet insurance for dogs and cats typically costs between $100 and $500 per year. Your employer might even offer it. Learn more at http://moneycentral. msn.com/content/ Insurance/P76008.asp and consider providers such as Veterinary Pet Insurance ( www.petinsurance.com or 888-899-4VPI), PetCare ( www.petcareinsurance.com, 866-373-7387), or Petshealth ( www.petshealthplan.com, 800-807-6724).

Q: How does a stock watch list work? – B.L., Abilene, Texas

A: As you spend time learning about investing in general and reading about particular companies, jot down the firms you think you might like to invest in. Ideally, enter these companies into an online portfolio so you can easily track their progress from week to week or month to month. Online watch lists are most convenient, but if need be, you can maintain a list in a paper notebook.

My dumbest investment

I was pretty proud of myself. After studying the market for about two years, I successfully made $20,000 in 2005. My CPA, though, notes that I was nuts, as it cost $400,000 of gambling to “win” the $20,000. Had I not been so lucky, I could have gone bankrupt. Yikes, how dumb I was. And furthermore, my brokerage made $27,000 on my day-trading – more than I did. – Carolyn Dalvit, Littleton, Colo.

The Fool Responds: Ouch. You’re absolutely right to use words such as “gambling” and “win.” Successful investors will typically buy into carefully researched companies aiming to hang on for years, but day traders are really just speculating as they hang on to their shares for just days, if not hours or minutes. Looking for quick profits, they’re gambling, not investing. According to a 2004 study, some 82 percent of day traders lose money – those aren’t good odds. Consider that the favorite holding period for superinvestor Warren Buffett is “forever.”