Planning ahead: Steven Taylor mulls a second career after retirement.

RETIREMENT WASN'T ON STEVEN TAYLOR'S radar until this past July, when the State of Maryland Office of Corrections changed its retirement policy, Employees are no longer required to work 30 years before retiring. Now 20 years is a sufficient term of service. Taylor, a dietary correctional officer, has roughly 18 months before he hits the 20-year mark. So he needs to plan for his nonworking years in a hurry.

The trouble is he's far from being prepared financially. Though he makes $48,000 a year, he doesn't have any savings. He says he's leery about banks after he had to spend a month trying to get access to his money during the savings and loan crisis of the late '80s. He has about $500 in a secret stash at home, and he has been participating in his retirement plan at work for only a few years.

At age 49, Taylor is desperately trying to add to the $3,500 he has in his employer-sponsored plan. In the last 18 months, he switched from having his money primarily in a bond mutual fund to equity mutual funds, where he hopes to earn better returns. Taylor also increased his payroll deduction and is working as much overtime as he can get.

One thing working in Taylor's favor is his pension, through which he'll receive a guaranteed $1,300 a month for life. His monthly expenses are about $1,800, so he plans to make up the difference by working for himself. "I'll find other ways, like real estate investments or selling real estate, to add to my pension income so that I can afford a house. Staying at my current job is not an option," he says.

Owning a house is a priority for the Baltimore resident. He has explored the market but was discouraged when a real estate agent was none too impressed with his credit report. His credit score, 573 out of 850, reflects in part a history of delinquent payments. The low score makes him less promising as a potential home buyer and makes becoming one more expensive; the lower your credit score, the more likely you are to pay a higher interest rate. "This is what happens [when you're] a procrastinator and disorganized," says Taylor.

To get that house, Taylor will have to do a better job of managing his money. He has about $600 in discretionary monthly income. But Taylor hasn't made that money work for him. What's gotten in the way of saving? "I like to travel, take weekend getaways. That adds up," he says. So do the four nights a week at his favorite restaurants.

Taylor is unsure about his future. "I don't know how to get where I want to go after I retire, what steps to take. The worst thing would be to take early retirement and not follow through, to have to go back to working on somebody's clock" He believes, though, that once he comes up with a retirement road map, he'll have the discipline and means to follow the right path. "I know I'm capable of doing what needs to be done."

The Advice

Walt Clark, president of Clark Capital Financial in Columbia, Maryland, assessed Taylor's early retirement goals. Since the $1,300 a month from his pension will not be enough to cover his expenses, Clark says Taylor will need to bridge the gap. Clark offers this advice:

* Concentrate on the 401(k). Although Taylor began contributing more to his 401(k) plan, he's still putting away only 5% of his gross income. With less than two years to retirement, he needs to invest the maximum amount allowed until he leaves the job, says Clark. He suggests 15%. If that is too tough to do right away, even bumping up his contribution to 10% would vastly enhance Taylor's situation.

"This strategy will capture additional pre-taxed returns, which over the long run will accelerate better returns and wealth," Clark explains. He recommends allocating assets to small-, medium-, and large-cap stock funds. Once he turns 50, Taylor can take advantage of a catch-up provision that will allow him to invest an additional $500 a year above the maximum contribution allowed to a retirement account.

* Improve credit rating. A good credit rating will help not only in the pup chase of a home or investment property but also if Taylor should decide to go into business for himself. Therefore, improving his credit score is crucial. "Ideally, he should try to get a score in the high 600s or above, so that he can obtain a low rate and keep his mortgage payments low," says Clark. He suggests that Taylor take the $600 in discretionary monthly income and pay off his credit card balances. However, he should keep the cards active since dosing the accounts could negatively affect his credit score. Furthermore, says Clark, "After the cards are paid off, I would contact each credit card company to negotiate a higher credit line and lower interest rate." If he needs to use the cards, pay them off monthly before the cycle ends to eliminate interest charges.

* Shore up savings. While Taylors immediate task will be paying off his high-interest credit cards, he needs to put much of his $2,000 contest winnings toward paying off the car loan. He also needs to get his money out of the stash and put it to work. Taylor is paying $440 a month on a 2001 Jeep Cherokee Laredo. Before Taylor retires he should be able to kiss his debts, excluding the time-share, goodbye. That's good news because it means he can focus on saving in the near future. He also needs an emergency fund. Ideally, he should be able to quickly put his hands on at least six months of expenses once he no longer has a car note. Clark recommends that Taylor establish an automatic investment account. He can invest as little as $25 a month with money automatically deducted from a checking account. "I like a mid-cap stock fund for this plan," says Clark. Two viable choices: Jennison Growth fund (PJFZX) and Van Kampen Aggressive Growth fund (VAGAX).

* Prepare for a career change. As far as embarking on a second career after retirement, Clark encourages Taylor to pursue becoming a real estate agent while he's still working full time. Selling real estate part-time would suit his long-term goals. He needs to contact a local real estate agent or broker, or a local community college, and apply for the classes. After he passes the exam, he could work for a real estate agency to gain firsthand experience.

Financial Snapshot:
Steven Taylor

HOUSEHOLD INCOME

Gross Income                   $48,000

ASSETS

Virginia Beach Time-share      $10,000
Retirement Account              $3,500
Savings                            500
Value for Car *                  6,155
Total                          $20,155

LIABILITIES

Balance on Time-share          $10,000
Credit Cards                    $4,000
Car Loan                         5,720
Total                          $19,720

NET WORTH                         $435

* ACCORDING TO KELLEY BLUE BOOK.