Turning 50 makes the idea of retirement feel more real and immediate. You might be excited and motivated to try and retire quickly, or you might feel stress and anxiety, wondering if you’ve put off financial planning a bit too long.
Whether you are excited or stressed, here are the top 7 tips for financial planning as a fifty-something to ensure you’re on the right track for your ideal retirement.
What Are the Top 7 Tips for Financial Planning as a Fifty-Something?
1. Boost Contributions to Your Retirement Plans
At ages 50 and 55, you can significantly increase your retirement contributions. At age 50, you become eligible for making catch-up contributions in your 401(k), 403(b), TSP, Roth IRAs and Traditional IRAs, allowing you to contribute more than the standard limit. For example, in 2024, you can contribute an extra $7,500 to your 401(k), 403(b), or TSP if you’re over 50, and up to $1,000 extra to your Roth IRA or Traditional IRA.
Age 55 unlocks the ability to make catch-up contributions in your HSA (Health Savings Account). In 2024, you are eligible to make a $1,000 additional catch-up contribution in your HSA. If you are married and you and your spouse have your own HSAs, you both can make a catch-up contribution of $1,000 starting at age 55 before you hit the HSA contribution limit.
Not only will catch-up contributions help you boost your retirement savings and retirement nest egg, but contributions to your HSA, 401(k), 403(b), TSP, or Traditional IRA have the potential to provide additional tax deductions in the year they are made.
2. Clear Any Remaining Debts
Entering retirement with the least amount of debt possible provides greater freedom for how you use your retirement income. While you are still employed and have a regular paycheck, consider paying off your remaining debts in the following order of importance: credit card debt, personal loans, car loans, student loans, and mortgages. To pay off your debts quickly, consider using the “debt snowball” method or the “high interest” method of debt elimination.
The “debt snowball” method suggests that you pay the minimum amount on all of your loans except your smallest loan balance, where you would pay as much extra as you can. Once this loan is paid off, you would take all of the money you are paying on the eliminated loan and add that to what you were paying on your next smallest loan.
The “high interest” method of debt elimination works the same way; however instead of paying extra on your smallest loan balance, you would pay extra on your loan with the highest interest rate. Eliminating these obligations will reduce your financial burden and allow you to allocate more funds to your retirement savings and enjoy more of your retirement income.
3. Strengthen Your Cash Savings
A solid emergency fund can protect your retirement savings from unexpected expenses and provide peace of mind as you approach retirement. How much cash you keep on hand is a personal preference. You might sleep well at night knowing that your emergency fund is robust enough to cover at least six months’ worth of living expenses or you might be comfortable with less.
Also, consider the amount of cash reserves within your retirement accounts. Cash and conservative assets, such as bonds, can be used to generate income in periods where the stock market is down. The goal of using cash and bonds for income in down markets is to allow your aggressive holdings, such as stocks, to recover without having to be sold at a loss.
4. Envision Your Ideal Retirement Lifestyle
Take some real time to visualize what you want your retirement lifestyle to look like. Do you plan to travel, start a new hobby, or spend more time with family? What will that look like in practice if you get tired of golfing or being on the road?
Who will you spend your time with on a regular basis and how will you maintain healthy relationships when you no longer see your colleagues each day? What activities will make you feel fulfilled when you no longer identify with your career as your identity?
Having a clear vision will help you set realistic personal and financial goals as well as determine how much you need to save to achieve your ideal retirement lifestyle. Clarity around the previously mentioned questions will guide your retirement planning and ensure your retirement assets align with your life and financial goals.
5. Monitor and Adjust Your Investment Portfolio
As retirement approaches, it’s important to reassess the risk and income potential of your investment portfolio. Your asset allocation (mix of investments) should include growth investments to build your savings throughout retirement and conservative investments to reduce market volatility.
The asset allocation of your retirement plan should be able to produce the income that you need to live on while not exceeding your comfort with volatility and risk. Keep in mind that you may have to withhold taxes from your investment distributions so be sure to consult with a professional to figure out a sustainable withdrawal and tax strategy.
6. Evaluate Your Insurance Needs and Risks
It’s easy to ignore the risk of your retirement goals being affected by health or life events. Consider reviewing your insurance policies to ensure you have adequate coverage leading up to retirement and the right insurance in retirement to protect your loved ones.
Life insurance provides your beneficiaries a tax-free, lump sum of money in the event of your death. It can be especially important if you are married and your combined income is needed to cover your current expenses and to save for retirement.
Reviewing your life insurance needs and coverages can also help you eliminate insurances that don’t fit your current situation. A common example would be finding out that you are paying monthly for an old whole life insurance policy that would only cover burial expenses, when you really need multiples of your income in coverage to protect your spouse.
Often overlooked, disability insurance can be powerful by replacing a portion of your income if you are disabled prior to retiring or age 65. You may have the option to purchase this through your employer’s group benefits program or it may be provided to you at no cost. You will likely not carry this type of insurance into retirement.
Long-term care insurance is also worth exploring, as the costs of extended chronic care can quickly deplete your retirement assets. If you are single in retirement or have a family history of Alzheimers or dementia, you might have a higher risk of needing to pay for some type of chronic care in retirement. Long-term care insurance is usually expensive and not the only way to pay for needed care so be sure to speak to a professional about your situation.
In addition to reviewing your insurance, your 50s are an ideal time to consult with an estate planning attorney. Consider making sure that your estate plan will pass your assets to your loved ones when you are no longer here in the way that makes the most sense.
7. Consult with a Financial Advisor
Consider consulting with a financial advisor who specializes in financial planning and retirement planning. When building your financial plan, your advisor will offer advice on maximizing your retirement contributions, and help you with other burning questions/issues, such as social security retirement benefits planning or reviewing your estate plan.
You may be worried about creating a secure income in retirement or planning for medicare. You might also want to keep as much of your retirement income as possible by lowering your tax liabilities. A financial advisor who specializes in retirement planning can provide you with peace of mind and confidence.
How Is Financial Planning Different in Your 50s?
Financial planning in your 50s is distinct from earlier decades because you’re closer to retirement and your financial priorities have likely shifted over the course of your life. At this STAGE, you’re preparing to transition from earning a paycheck to relying on your savings and investments.
There’s less time to recover from financial missteps, making it important to be more strategic and focused in your retirement planning.
Schedule a Free Consultation to Make the Most of Your 50s and Beyond
At Stage Ready Financial Planning, we specialize in fee-only financial planning for individuals and couples over age 50 in Dayton & Southwest, Ohio. We help you create a clear and easy to understand plan so that you can retire with confidence and live your ideal lifestyle. Schedule your intro call today!
FAQs
How much money should a 50-year-old have saved?
The amount of retirement savings you need will depend on when you plan to retire and how much retirement income you want. Here’s a comparison chart that illustrates how much a 50-year-old should have saved to retire at various ages, based on different withdrawal needs.
Assumptions:
- Annual Investment Withdrawal Needs: The table assumes gross investment withdrawal needs of $50,000, $75,000, $100,000, and $125,000 per year.
- Growth Rate: An annual growth rate of 5% on investments is assumed before and during retirement.
- Withdrawal Rate: The chart assumes an example withdrawal rate of 4% at retirement.
- Contributions: The chart assumes $8,000 per year in contributions that stop at retirement.
- Length of Retirement: 30 years approximately
How can I build wealth in my 50s?
Some great ways to build wealth in your 50s include taking advantage of catch-up retirement contributions and being focused on debt reduction. If you have a financial plan, it can be exciting to see the difference in your retirement projections by paying down your debt in a systematic way and increasing your retirement accounts quickly by taking advantage of higher contribution limits.
Is it too late to start a 401(k) at 50?
It’s never too late to start saving for retirement. Setting up a 401(k) at 50 allows you to take advantage of catch-up contributions. You can contribute more than you would have been able to in your 30s and 40s, allowing you to boost your retirement savings quickly and grow your retirement nest egg.