Your 50s are a pivotal decade. You are near enough to retirement to feel its hot breath on your neck, and that can be a good thing.
It sharpens your focus at a time when you may still have 10 or 15 years of work left, so there’s time to fatten your savings and watch the money grow. At this point, too, you may have been doing a job or honing a skill for long enough to feel a delicious sense of mastery and to be at the peak of your earning power.
These peak earning years coincide with a peak chance for savings. If children finally are on their own, household expenses are lighter than they have been in decades. Rather than spend this freed-up money, sock away savings and pay off debt, which will bring you closer to the retirement you hoped for.
Following are 12 critical financial moves to make in your 50s.
1. Map out your strategy
Spend a weekend gathering your financial information — your savings, investments and other assets as well as your debts and bills. Then, map out your strategy for retirement.
Seeing all of the details of your finances and setting goals for your life beyond work will expose the gap, if any, between your plans and your savings. It will also spur you to close that gap while you still can.
2. Meet with a fee-only financial planner
This is a good moment, while there’s still time for course corrections, to make sure you haven’t missed any crucial piece of planning. Even people who comfortably manage their own investments can profit from one or two meetings with a fee-only financial planner.
It’s important that the person you see charges an hourly fee with no commissions or products to sell, so they can objectively review your numbers, assumptions and plans. For more pointers, check out “How to Choose the Perfect Financial Adviser.”
3. Use retirement calculators — with caution
By your 50s, you should have a realistic idea of what your income will be in retirement. Online retirement calculators are a good, if inexact, way to estimate the monthly or annual income you’ll receive from savings and other sources.
Calculators vary a great deal in their accuracy, but they can be useful for setting goals and exposing gaps between your likely income and expenses in retirement. The more detailed data a calculator collects, the more likely its results will be useful for you.
Two problems with calculators: They require you to make impossible guesses about the future rate of return on your investments, and sometimes they fail to accurately account for taxes.
Because of these issues, it’s a good idea to play around with several different calculators to see how your results can vary.
One respected calculator is ESPlannerBASIC, a free tool created by Laurence Kotlikoff, an economics professor at Boston University and the president of Economic Security Planning Inc.
Other calculators include:
- Vanguard Group’s Retirement Nest Egg Calculator
- The Flexible Retirement Planner from Random Walk Ventures
- The AARP Retirement Calculator
4. Supercharge savings
If life’s demands have made it hard so far to save for retirement, your 50s offer a good chance to catch up. You’ll see if you are saving enough by following the first three steps: mapping your retirement, assessing your situation and estimating your retirement income.
If you find there’s a gap between savings and your needs in retirement, the next step is to ramp up your savings.
Shoot for saving 20 percent of your income. If that’s too big a change, choose a lower percentage to start with and then increase it over time. For example, if you can only set aside 10 percent of your income right now, start there and increase the percentage by 2 percent each year or 1 percent every few months.
5. Maximize retirement plan contributions
If your employer matches a portion of your workplace retirement plan contributions, take full advantage of the free money — no matter your age. If your employer matches up to 3 percent, for example, save at least 3 percent to capture that gift.
Additionally, the Internal Revenue Service has special rules designed to encourage savers who are 50 or older to ramp up their savings for retirement. Here’s how to take advantage of these rules:
- Max out your workplace retirement plan contribution: IRS rules let workers contribute up to $18,500 to workplace retirement plans like a 401(k) in 2018.
- Max out your workplace retirement plan “catch-up” contribution: Savers age 50 and older may also contribute an additional $6,000 to such a plan this year. That’s $24,500 total.
- Max out individual retirement account (IRA) contributions: The IRS rules for IRAs allow contributions of $5,500 in 2018 plus a catch-up contribution of $1,000 if you are 50 or older. That’s $6,500 total.
6. Decide whether to pay off your mortgage
In an earlier era, workers tried to enter retirement with no debt at all. Paying off your mortgage before retirement still is a good goal, but it’s not possible for many people today.
Money Talks News founder Stacy Johnson says that putting money in a tax-deferred retirement account often offers a better return than putting that money toward paying down a mortgage faster. The reason, in short, is tax savings.
At the same time, you can’t discount the psychological value, at least for some people, of owning their home free and clear in retirement. For a closer look at the pros and cons, read: “Ask Stacy: Should I Save More for Retirement or Pay Down My Mortgage?”
7. Pay off debt aggressively
Once you retire, interest payments on debt can eat up your limited income, making it difficult to pay off loan balances. Now, in your highest earning years, is the time to aggressively eliminate non-mortgage debt, from credit card balances to auto loans and other debts.
Don’t let pride stop you from getting help if you need it. You owe it to yourself and your family not to stick your head in the sand.
If loan payments are feeling unmanageable, you may benefit from taking out a consolidation loan to lower your interest rates and help you focus on a single payment. A trustworthy nonprofit credit-counseling agency can help you set goals, make a repayment plan and negotiate with your creditors if necessary.
8. Keep a portion of savings invested in growth
Playing it safe is a natural inclination at this stage in life. You want to protect your hard-earned savings, but if your savings don’t at least keep up with inflation you’ll lose spending power.
For example, it takes about $165 to buy goods and services today that you could have bought with $100 in 1995, according to this Bureau of Labor Statistics’ inflation calculator.
The solution? Keep a good portion of your retirement savings invested in the stock market. Because retirement is a stage of life that can last 20 or 30 years, there’s time to recover if some of your investments lose value.
9. Bring both spouses on board
If finances are the realm of just one spouse in your family, it’s time to correct that. Both members of a couple should understand their debts, savings, investments and plans so that the survivor can take over the financial reins if one should die or become disabled.
10. Consider dropping life insurance
One place to cut expenses could be your life insurance premiums. But drop life insurance only if, after careful consideration, you find that it no longer benefits your family. For example: if your spouse and children will not need the protection because the children are grown and are financially independent, and your spouse will inherit a home and sufficient retirement savings.
If you are unsure what to do, get expert help from a fee-based financial planner (see step No. 2). Do not accept financial advice from an insurance representative or from anyone else who stands to gain from your decision or could sell you products.
11. Decide if you want long-term care coverage
If you are going to buy long-term care insurance, which helps pay costs should you become unable to care for yourself, your 50s are the years to do it. Wait much longer and premiums become prohibitively expensive. Also, you could develop health problems that could disqualify you for coverage.
The problem is, long-term care insurance is extremely expensive. The average premium for a 60-year-old couple was $3,490 in 2017, according to the American Association for Long-Term Care Insurance.
What’s a prudent person to do? After all, the cost of nursing home care currently is about $235 a day for a semi-private room, according to Genworth Financial.
Fortunately, long-term care insurance isn’t always necessary, says Stacy Johnson, weighing the pros and cons of long-term care insurance in “Ask Stacy: Should I Buy Long-Term Care Insurance?”
12. Practice living on less
You’ll save more, and faster, by reducing spending. But there’s another reason to get a good grip on your outflow: Living on less gives you information about where your money goes and how much you truly will need in retirement. It’s a reality check for your planning.
What are your money tips for people in their 50s? Share your experiences in comments below or on our Facebook page.
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