Money Advice for Your 50s
For many in their 50s, the concept of retirement feels much more real than it may have before. Sure, you likely still have a decade or so of working to go, but clocking out for the last time and enjoying your new retiree status is quickly approaching. Does that “almost there” feeling make you excited, or does it leave you feeling nervous and unprepared?
If you fall into the “nervous” camp, don’t worry — you still have time to prepare. Here are seven money moves you can make between the ages of 50 and 59 to set your future self up for financial success.
Catch up With Retirement Contributions
Have you stayed on top of your 401(k) and IRA contributions, or are you scrambling to play catch-up? Fidelity recommends that individuals who hope to retire by 67 have 6x their salary saved for retirement by age 50, 7x their salary by age 55 and 8x their salary by age 60.
If you’ve fallen a bit behind, there are steps you can take to get your savings back on track. For those investing in 401(k), 403(b), SARSEP and 457(b) plans, catch-up contributions become a new option once you turn 50. In 2021, this annual contribution can be anything up to $6,500. If you have a traditional or Roth IRA, you can contribute up to $1,000 extra each year.
As for your investment portfolio, your 50s aren’t quite the time to get more conservative. Dr. Robert R. Johnson, professor of finance at Creighton University’s Heider College of Business, noted that one of the biggest investment mistakes 50-somethings make is not taking enough risk.
“While it is true that when you are in the retirement red zone (say within five years of retirement) you need to de-risk your portfolio — that is, reduce the percentage of equities in the portfolio — one should not completely de-risk the portfolio,” Johnson wrote. “An individual in their mid-50s has a long expected lifespan, and an overly conservative asset allocation results in a much higher probability of outliving your retirement funds.”
Set Your Retirement Roadmap
Retirement likely felt too far away to dream about when you started to save for it in your 20s. Once you hit your 50s, however, retirement is within your reach! It’s time to start imagining what your post-work life will look like. Here are four questions to ask yourself about your future retirement:
“How Much Do I Think I’ll Have?”
Between 401(k)s, IRAs, pensions, social security, and any other investments you may have, how much do you currently have? How much will these investments grow between now and your retirement day? Online retirement calculators and financial planners can help you estimate how much you’ll have based on where your finances are now.
Of course, estimates aren’t guarantees. What happens if your current guesses aren’t factoring in an unpredictable future event? Curtis Bailey, financial advisor and founder of Quiet Wealth Management, recommends that those in their 50s prepare retirement plans for multiple future scenarios.
“What if returns are lower? What if inflation is higher? How would they consider adjusting their spending?” Bailey asks. “This does not need to be precise. Good guesses help to understand potential tradeoffs and overall feasibility.”
“How Much Will I Need?”
Guessing the amount of money you’ll need to live comfortably in retirement can be tricky, but it’s not impossible!
“A common mistake people make is they think about their current salaries and assume this is the amount that needs to be replaced,” explained Andrew Herron, managing partner at Stone Pine Financial. “Instead, look at your net-paychecks (what is actually deposited into your bank account). This amount will better represent what you currently have available for expenses.”
Once you determine that number, think about how your spending might change over time. “Perhaps a mortgage will be paid off by the time you reach retirement, further reducing your obligations,” said Herron. “Or perhaps you plan to downsize your home which could reduce your expenses.”
“When Should I Officially Retire?”
After estimating what you’ll have and what you’ll need, take a look at your timeline. Based on your current pace, will you have enough money saved to retire when you want to?
The normal retirement age for those born after 1960 is 67. If you’re ahead, you may choose to retire early, but you’ll see a reduction in your social security benefits. Or, if you’re behind savings-wise, it might make sense to delay your retirement for a few years in exchange for increased benefits.
Research your options and meet with a financial advisor in your 50s to set your estimated retirement date. While this date isn’t set in stone, having a target can help you visualize your future and better prepare.
“What Do I Want To Do Next?”
In addition to coordinating the financial aspects of your retirement, you’ll need to start thinking about all of that spare time you’ll have on your hands. What do you hope to do when you’re no longer on the clock?
“For many of us, our work is our life,” noted Will Steinberger, founder and CEO of Think Different Financial Planning. “Once people don’t have that, it can feel like you’ve lost your sense of identity and don’t have as much purpose. As funny as it might sound, you should plan what you’ll do when you’re not working.”
As you go over the logistics of your retirement, consider what you hope to do with your former work hours. Do you want to spend quality time with your children and grandchildren? Do you see yourself packing your bags and traveling the world? Are you hoping to pursue a passion project or hobby? Can you see yourself putting in volunteer hours at an organization that’s close to your heart? No matter what dreams you have for your retirement, be sure to include room for the things that matter most to you.
Cut off Your Kids
Many parents in their 50s are either preparing for their children to leave home or have officially become empty nesters. As your kids reach their new stage of independence, it’s important that they become financially independent as well — not only for their sake, but for yours, too.
Daniela Baker, community manager at CreditDonkey, emphasized the importance of helping children develop positive money habits and teaching them how to handle expenses. “If you’re already in your golden age and still trying to wean them off of your finances, make sure to communicate your intentions and goals openly,” she explained. “Make them understand that it will be beneficial to you as a parent since you will save more for your retirement. On the other hand, it will be helpful to them because it will allow them to exercise their financial independence. Yes, it will be challenging and uncomfortable, yet it is inevitable.”
Downsize Your Life
You’ve likely taken ownership of many possessions and financial obligations over the past 50ish years of existence. Unfortunately, these things can weigh you down in retirement, limiting your ability to move where you want to and focus on what matters most.
Vicky Lowell, financial analyst, finance counselor and founder of Empowered Worth, discusses the benefits of downsizing with her clients. “As a financial coach, I often have a client revisit their wants, needs and dreams for retirement. I also suggest that they begin the process of downsizing, so that this transition is not as shocking at retirement age,” she explains. “Starting the downsizing now allows my client to maximize savings in the last years of employment and give a clearer picture of what their budgetary requirements will be.”
In order to avoid a massive, last-minute purge, it’s a good idea to start taking stock and letting go of these things in your 50s. Here are three things to downsize so that you can enjoy your retirement to the fullest.
- Are you dreaming of moving to a new location after you retire?
- Have you discovered that you’re paying for more square footage than you actually need?
- Are you hoping to spend more time traveling than staying cooped up at home?
- Should you experience health problems as you get older, could your multi-level home be difficult to move through?
If you’ve answered “yes” to any of the above, you may want to consider downsizing your home when you retire. Even if you’re planning on staying in your current hometown for the foreseeable future, moving to a smaller home nearby can lead to big savings in upkeep, utilities, insurance and taxes. That extra cash in your pocket will definitely come in handy when you shift to living off your retirement savings.
Due to the global pandemic and the shift towards remote work, many people have made big moves to their dream retirement homes earlier. If your workplace allows you to, consider going fully remote and keeping an eye on the housing market.
Knick-knacks. Dusty workout equipment. Clothes that no longer fit. Old toys and games that your adult children have left behind. You’ve likely amassed plenty of items that you no longer want or need. If you’re hoping to move to a new home when you retire, don’t pay to bring all of that junk with you! Start clearing out the clutter now.
You can turn gently-used and almost-new items into cash by selling them at garage sales or on websites like Craigslist, OfferUp or Facebook Marketplace. If you use an online selling tool, make sure you take proper precautions before meeting any online buyers in person.
As you get older and pay off your other financial obligations, like your mortgage, credit cards, personal loans and childcare costs, don’t replace those bills with new ones! Instead, reallocate that extra cash towards your retirement savings.
In preparation for your retirement, start practicing “living on less” in your 50s. Keep an eye on your budget and examine what you’re spending on now — is there anything you can cut and do without as a retiree? Reevaluating your expenses now can help you make your retirement savings last in the future.
Consider Future Health Needs
Health plays a big part in our finances, and it can become a larger investment as you get older. Fidelity estimates that an average retired couple aged 65 in 2021 would need about $300,000 saved to cover their health care needs throughout their retirement. Unfortunately, many assume they can rely on Medicare for all of their health needs, but Medicare doesn’t cover everything.
While health needs vary greatly from person-to-person, 50-somethings can save for Medicare premiums and out-of-pocket expenses now. HSAs are a great, tax-efficient way to save for future medical costs.
Julian B. Morris, certified financial planner and chartered financial consultant at Concierge Wealth Management, notes that making healthy choices now can help in keeping your future expenses down. “Let’s do our best to stay healthy,” he wrote. “Talk a nightly walk, join a gym, do an outside group fitness class. Watch what food you put into your body. Awareness about your health could save you thousands in retirement on medical bills.”
Adjust Your Insurance
Most people have a fair amount of insurance policies by the time they reach their 50th birthday. These often include home or renters, health, auto, disability, long-term care and life insurance. However, you may want to reconsider your life insurance policy during this decade.
“People in their 50s often have kids that have left home or are about to,” explained Jake Irving, owner of Willamette Life Insurance. “Is that large life insurance policy still necessary? Most life insurance policies are intended to replace an income when the insured dies, but you might not need this once you retire.”
Rather than focusing on a new term life insurance policy, Irving recommends that those 50 and up look into a smaller whole life insurance policy, sometimes referred to as senior life insurance or burial insurance. This kind of policy comes in tailored amounts, never experies, and provides coverage for funeral expenses.
Move on From Your Debt
In an ideal world, you would have paid off all of your student loans, credit card debts, personal loans or mortgage by the time you reached your 50s. Obviously, life can get in the way and things happen. If you’re still chipping away at your debt, you’re not alone. However, as you get closer to retirement, it becomes more crucial to tackle your debts once and for all.
If you’re struggling to pay everything back, it may be time to enlist the help of financial experts. Start exploring your debt relief options now so you can be a debt-free retiree.
Money Tips for All Stages of Life
You can make smart financial moves before and after your 50s, too. Check out more of Top Dollar’s decade-specific advice below: