7 Key Retirement Milestones

The first milestone is different for everybody. It happens when you get your first job. If your employer offers a 401(k) plan, the advice of financial planners is pretty much unanimous: Take that offer, no matter how young you are and how remote retirement seems to be. Even teenagers who get a regular paycheck can open a Roth IRA. The message from the first retirement milestone is clear. The sooner you get the magic of tax-free compound interest working for you, the better. "The earlier you get started, the easier it is, not just to accumulate funds, but because it gives you more time to think about what your retirement will look like," says Tad Fryer, a manager for Charles Schwab in St. Louis.

For the next retirement milestone, you have to jump a few decades ahead to age 50. That's when the "catch-up" provision kicks in. If you've been lax about socking away money in your employer-sponsored 401(k) retirement plan, the catch-up allows you to make up for lost time by increasing the amount you contribute to the plan, according to the IRS. If you are age 50 or older, you can add an additional $5,500 to the contribution limit for 2010. (A catch-up provision also allows you to contribute an extra $1,000 to an IRA.) Other workers can contribute a maximum of $16,500 per year to a 401(k), Fryer says. Bumping up the amount you stash away in your 401(k) or other plan, even if you're late to the game, pays off in the long run.

One of the most eagerly anticipated milestones comes at age 59. That's when you can begin making penalty-free withdrawals from your 401(k). Distributions before that age get hit with a 10 percent early-withdrawal penalty, and you also have to pay income tax on the amount taken out. Some exceptions exist for workers age 55 and older, but all of those disincentives disappear six months after your 59th birthday. That's when you can begin taking distributions, or set amounts you'd like withdrawn every month. You can also take out your money in a lump sum, says Jean Setzfand, director of financial security for AARP.

Before you cash out, retirement advisers urge a little caution. You don't want your money to run out too soon.

"People are living much longer now," Fryer says. "Nowadays, for a married couple that makes it to age 65, odds are very good they'll live until their 80s, and perhaps 90s."

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