Once you’re in your 50s and the end of full-time work is no longer a distant concept, it’s a good time to get serious about planning for the next chapter of life.
Whether you intend to entirely leave the work force at some point or keep a foot in it, financial advisors say there are things you can do now to better prepare yourself financially.
“Sometimes people don’t really know how to assess their future needs and don’t want to talk about it,” said certified financial planner Charlotte Dougherty, president of Dougherty & Associates in Cincinnati. “But a lot of times there are opportunities at that age to really move the needle on your retirement planning.”
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Here are five aspects of your financial life that take on new meaning in your 50s, and what they mean for your golden years.
If you haven’t recently evaluated how your retirement savings is divvied up among different investments, now is an good time to revisit your portfolio allocation.
Two things become more important in this decade: your risk tolerance — how well you stomach the value of your investments going up and down — and when you anticipate taking distributions from your savings.
“If someone found that this recent market sell-off scared them, they lost sleep or focused too much on the news or the markets, it’s likely a clue that they are invested too aggressively,” said Howard Pressman a CFP and partner at Egan, Berger & Weiner in Vienna, Virginia.
He said if that’s the case, you can take small steps today to move some assets from riskier investments to more conservatives ones, looking for days when the market is going higher to sell a little more.
“Higher than normal cash balances may be smart for those most averse to market fluctuations,” Pressman said.
It’s also time to take a closer look at what you expect to spend from your portfolio each year in retirement.
“Make sure you have five to seven years of your anticipated distributions outside of the equity market, especially if that transition is coming up in the next 10 years,” said CFP Nicole Strbich, director of financial planning for Buckingham Financial Group in Dayton, Ohio.
Various research suggests many 50-somethings are ill-prepared for their golden years.
For example, among 401(k) accounts at Vanguard, the median retirement account balance — half are below, half above — for people ages 55 to 64 stood at $61,739 in 2018, according to the company’s recent How America Saves report. For ages 45 to 54, the median was $40,243.
Remember, whatever amount you’ve saved will need to be combined with other sources of income — i.e., Social Security — and stretch across the remainder of your life.
The good news is that your 50s are an ideal time to turn the notch up on your savings.
“This is the point when you could be hitting your peak earning years, and your expenses may be declining if you’re empty nesters,” Pressman said. “If there’s a gap between what you’ve saved and what you need, you’ve probably got another 10 or 15 years to fill it.”
You also are allowed to start putting more tax-advantaged money in retirement accounts once you reach age 50.
While the contribution limit for 401(k) plans is $19,000 for 2019, workers age 50 and older are allowed to stash an extra $6,000 in their accounts under the so-called catch-up rule. That’s a total of $25,000 you can put away, as long as your company allows the catch-up contributions (most do). This applies to both traditional and Roth 401(k) plans.
The rules are less generous for individual retirement accounts. Both traditional and Roth IRAs have contribution limits of $6,000, with an extra $1,000 allowed per year once you reach age 50. Be aware, though, that while traditional IRA contributions come with no annual income limits, Roth IRAs do.
Of course, finding extra money to funnel into those retirement accounts often means changing your spending habits or squeezing extra money out of your budget.
Taking a close look at where your money is going can help identify extra cash.
“It can be enlightening to see how much you’re spending that you really could be saving,” Dougherty said.
Really bad debt
If you have credit card debt, aim to get it paid off as soon as possible.
“Credit card debt is really an issue for many people,” Dougherty said. “It’s a pure cost, and it can be a high cost.
“And it’s a big impediment to being able to save.”
The average interest rate on credit cards is above 17%. By comparison, the average rate on a 30-year fixed mortgage is below 4% and a five-year loan for a new car comes with an average interest rate of 5.8%.
Even private student loans — which typically are several percentage points higher than federal student loans — are generally lower. Credit card debt also comes with zero potential tax benefit, unlike mortgage interest and student loan interest.
In other words, credit card balances typically are far more expensive than other forms of debt.
“There’s nothing wrong with taking vacations and buying gifts, as long you don’t use plastic to pay for it and pay a huge interest rate,” Dougherty said.
Your future self will thank you.
For those who count themselves among the growing number of Americans with a high-deductible health plan, the health savings account that comes with those plans is a way to put away extra tax-advantaged money for retirement.
If you don’t need to use it to pay for current health costs, it delivers a triple tax benefit: It’s pretax, grows tax-free and is generally untaxed at withdrawal as long as it is used for qualified medical expenses.
In 2019, individuals can put away up to $3,500 in an HSA. The family maximum is $7,000.
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While many people assume they’ll just keep working full-time long past the average retirement age of about 63, the risk of health issues interfering with those plans becomes greater as you age.
In fact, the average 65-year-old couple today will spend $285,000 on health care over the remainder of their lives, research from Fidelity Investments shows.
While you get to sign up for Medicare right around your 65th birthday, it doesn’t cover some medical needs in later life, including dental, vision and most long-term care (extended help with daily living activities like bathing and eating).
New insurance consideration
Speaking of long-term care, when you reach your 50s, it’s a good time to think about how you’ll pay for it down the road.
Someone turning age 65 today has nearly a 70% chance of needing some form of long-term care in their remaining years, according to the Department of Health and Human Services. On average, women need care longer (3.7 years) than men (2.2 years).
If you don’t want to rely on family members or spend down your assets — and you are above the income threshold to qualify for Medicaid — insurance for long-term care can be an option.
While some people turn to policies that exclusively cover those costs, there also are hybrid options that combine life insurance with long-term care coverage.