The approach of a milestone birthday is a reminder that, as life changes, so do your needs and circumstances.
With the Big Five-O, the question is settled: You’re no longer a kid. And that’s a great thing, because maturity is much better than it’s cracked up to be.
So, instead of dreading it, update your financial life by hitting the following targets. Doing so will put you in a position to embrace the coming decades.
1. Debt: Tamed
It’s time to pay off your debts, or at least have them under control. Add new debt only when you can easily handle it.
Pay credit card balances before interest is applied.
2. Spending: Under control
With children possibly gone from the home and maybe even out of school, you may have more money on hand now. It’s tempting to spend it. After all, your friends may be living it up, and you’ve worked hard to get here.
Have fun, but don’t shortchange your retirement goals. If you are well-employed, your 50s are a gift — probably the best earning years of your life. Double down on savings, as retirement may last a long, long time.
Also, start thinking about how you’ll change your spending after retirement.
3. Retirement goals: Defined
Set a concrete goal for your retirement savings. Just do it. The kids will find a way to pay for college if it matters to them. They have years to get on their feet financially. You do not.
There are a couple of approaches. One is to set your goal for the amount of money that many investment professionals suggest you should save by retirement: 10 to 12 times the amount of your last full year of income.
Say, for example, that you expect to make $80,000 the last year that you work. Under this guideline, you would need to set aside $800,000 to $960,000 for retirement.
4. Retirement contributions: Inching up steadily
Now that you have a goal, keep increasing the percentage of your paycheck that you save for retirement. Make the increases so small they’re hardly noticeable.
If you’re currently diverting 12 percent to a retirement account like a 401(k) or IRA, bump it up to 13 percent. Six months later, give your retirement savings another tiny raise and keep it going until you are at your goal. Ditto if you’re saving 6 percent: Inch it up to 7 percent, and then onward.
Whatever your goal, automate the deductions from your paycheck, so you never see the money until it’s safely in your retirement account.
5. Social Security: On track for the max
Social Security is likely to be a key source of income in your retirement. Go to the official government website and set up a “my Social Security” account. Use it to estimate your future benefits at various retirement ages.
Consider working longer if you need to increase your monthly payout — and learn about other things you can do now to maximize your payout.
6. 401(k): Lowest fees possible
Many savers unknowingly pay far too much in mutual fund fees, losing up to hundreds of thousands of dollars they could have used in retirement.
Check your plan statements to see the fees you are charged. To learn how to reduce investing fees, read “Of All the Fees You Pay, This One Is the Worst.”
7. Your will: Updated
You don’t need a will. If you don’t have one, a probate court will decide what to do with your assets after you die.
If you want control over what happens to your money and property, though, you need a will. A will gives a voice to your decisions and requests after you’re gone.
Use it to say what you want for your children and pets. Use it to determine what happens to any of your possessions with financial or sentimental value. You can include provisions for your remains and, if you want one, name an executor who will be in charge of following your directions.
8. You: Giving back
Committing to doing good in the world is a part of maturing. With a small budget or a large one, philanthropy allows you to express your values and connects you to the world on new terms.
9. Long-term care: A plan in mind
By our 50th birthday, it occurs that maybe — just maybe — we really will get old. Since many of us will end up needing skilled nursing care at least for a short time in our old age, managing your finances requires considering how to pay for it.
Long-term care insurance can be an excellent tool. But whether it’s right for you depends on several things. Money Talks News founder Stacy Johnson lays out the considerations in “Ask Stacy: Should I Buy Long-Term Care Insurance?”
10. Mortgage: End in sight
Entering retirement with a paid-off mortgage is a smart goal. Tearing up the mortgage before retirement was commonplace a couple of generations ago. Not everyone can pull it off these days, but the rewards are great.
You’ll require less income. If your mortgage eats one-quarter or more of your monthly pay, you’ll effectively enjoy a raise of that much.
For help reaching this goal, see “7 Painless Ways to Pay Off Your Mortgage Years Earlier.”
11. Insurance: Reviewed and adjusted accordingly
Life changes, and so should your insurance. If your children or spouse would be lost without your salary, get enough life insurance to carry them through if you die.
When your children are launched in careers and you and your spouse are nearer retirement, you may be able to drop your life insurance policy.
If losing your salary would be financially devastating, cover the risk with disability insurance.
Take a look at your health insurance policy and home and auto insurance limits, too. Is the coverage still appropriate?
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