As retirement draws near, the prospect can be exciting. However, this is a time for preparation as well. Having a clear plan for your retirement is one of the most important steps you can take to prepare for it.

Should I continue to contribute to the Savings Plan?

As you get closer to retirement, you should save as much as you can. Many people have paid off major debts like mortgages and college tuition expenses, and income has likely peaked—making it much easier to set aside a significant amount in retirement savings. But whether or not you’re in this group, in the final years of your full-time career, do everything you can to ensure that you have enough to meet your retirement needs. For many people, that includes contributing as much as they can to their company-sponsored savings plan, and supplementing those savings through individual retirement accounts (IRAs) and other tax-advantaged saving opportunities.

Should I continue to invest money in the Savings Plan stock funds?

As you approach retirement, it may be wise to gradually reduce your risk exposure. That’s because you are approaching the years when you will need your savings, and probably can’t bear the brunt of a possible major market downturn. Keep in mind that you may still have to balance this approach with the need for investment growth. If you are within a few years of retirement, you may choose to invest about half of your portfolio in stocks but also add to your bond and cash equivalent investments, because you plan to tap your account soon.

How do I budget for retirement?

Planning and budgeting for retirement now can help ensure that you are ready to enjoy all retirement can offer. One way to determine your retirement income needs is to review your current expenses. After you review what you currently spend, you will need to adjust your expenses to reflect your anticipated retirement needs.  When budgeting for retirement, some additional factors to consider include when you plan on retiring, where you live, and how you will spend your time. 

• Knowing when you will retire affects how much time you have to save - and how long you will live off your savings.  In addition, retiring early can affect certain employer-provided benefits, such as pension benefits and medical coverage.
• If you plan on moving after retirement, you'll need to research the cost of living in your new location because it has an impact how long your sarvings will last.
• Keep in mind that the things you plan to do in retirement will affect the level of savings you need.  If, for example, you plan to travel extensively, you'll need more money than retirees who plan to spend most of their time gardening

To complete your retirement budget, consider your sources of retirement income including Social Security benefits, an employer-provided retirement plan, personal savings and investments (including what you save on your own and through the Savings Plan) and part-time work.

Consider saving as much as you can in the Savings Plan. If you are under age 50, you may contribute a maximum of $16,500 on a tax-deferred basis in 2009. If you will be 50 or older by the end of the calendar year, you may contribute a maximum of $22,000 on a tax-deferred basis ($16,500 plus $5,500 in catch-up contributions). But the plan also enables you to make after-tax contributions, so you actually can invest up to 75% of your pay in the plan (up to 35% of your pay if you are a highly compensated employee; see page 19 of the Summary Plan Description for details). Consider other savings options as well, such as an individual retirement account or even taxable savings accounts.

Even when you retire, you probably won’t need all your savings immediately. Therefore, you should also consider what your investment strategy will be during retirement. You may decide to shift more of your portfolio into cash equivalent investments, while keeping a portion invested in stocks so that your overall portfolio has a better chance of keeping pace with inflation.