- Examines 4 things you should do once you celebrate your 50th birthday
- Appropriate for couples or individuals
- Relevant for steady savers or those with a late start
Estimated read time: 5 mins
Retirement is typically a fleeting thought during our 40s, but that starts to change once we hit the half-century mark. It’s a milestone that gets most of us to start focusing on retirement. If you’ve been steadily stashing money away in the corporate 401K since your first day of work, good for you, you’re in better shape than most; conversely, if you’ve put off savings and are behind, don’t worry, now’s a great time to start catching up.
Here, I’ll cover the four things we recommend that our clients do once they reach their 50s:
- Identify ways to maximize your savings
- Revisit and review your portfolio
- Assess your retirement goals
- Review your insurance needs
1. Identify ways to maximize your savings
Your 50s are peak earning years, so you should first look to contribute to your employer-sponsored retirement plan, such as a 401k or SIMPLE IRA. This reduces your taxable income and takes advantage of any employer matching contribution. It also provides tax-deferred growth.
Most plans allow for larger, “catch-up” contributions for those older than 50. In 2021, the maximum annual contribution for a 401k is $19,500, plus an additional $6,500 for those 50+, while a SIMPLE IRA has an annual limit of $13,500, plus an additional $3,000 for those 50+.
Another way to maximize your retirement savings is with Traditional or ROTH IRAs, which can serve the same purpose, but have lower annual contribution limits. The limit for either (in 2021) is $6,000, plus an additional $1,000 for those 50+. ROTH IRAs differ in that they provide no upfront tax deduction; they’re funded with post-tax income, grow tax-free, and are not taxed upon distribution.
Another option to maximize savings is a spousal IRA. A spousal IRA allows a working spouse to contribute to an IRA that is in the name of the non-working spouse━an exception to the rule that an individual must have earned income to contribute. Spousal IRA contribution, catch-up, and income limits are similar to that of Traditional and Roth IRA’s; however, the IRS has rules regarding the tax deductibility of these contributions.
2. Revisit and review your portfolio
There are three major factors that influence your investment allocations: your goals, risk tolerance and time horizon. The latter is when you anticipate taking distributions from your savings.
Some in their 50s may be 10 years (or less) away from retirement. Therefore, it may be time to consider a more conservative investment portfolio because your savings won’t have much time to recover if a bear market occurs.
That said, even a conservative risk tolerance should aim to outpace the rate of inflation. We typically recommend that our clients not move fully out of equities since stocks provide a better hedge against inflation than bonds.
3. Assess your retirement goals
Your 50s are the time to assess and solidify your retirement goals. Some key things for you (and your spouse) to consider are:
- At what age would you like to retire?
- Do you want to retire completely or will you work part-time?
- Will you want to move to a new state or purchase a second home?
- Do you plan to travel? If so, how often?
You need to think about expenses in retirement and separate them into two categories: essential expenses (e.g. groceries, utilities, taxes, etc.) and non-essential expenses (e.g. a second home, travel, other major purchases, etc.). Keep in mind that some of this will be offset by the expenses that will end by (or before) then, including your mortgage, college tuition, car loans, and more.
Next, you need to factor any fixed income you’ll receive in retirement, whether from a pension or Social Security. If you have a pension, you should be receiving statements once every three years. For Social Security, the government has a helpful calculator, providing an estimate of benefits.
“A general rule of thumb is that retirees spend about 80% of what they do while fully employed,” says Brittany Albert Moran, CFP®. “However, for many, their expenses can be closer to 100% if they plan to travel or sustain other hobbies.”
To see where you stand financially, a good place to start is to use an online retirement calculator or you can meet with one of our CFP® professionals for a more customized assessment of how much you need to save.
4. Review your insurance needs
The first thing to reassess is life insurance. Should you renew your term life policy? Depending on your circumstances this may be unnecessary if your mortgage is paid off and the kids are out of college. However, in some cases, such as when a spouse chooses a single-life annuity option from their pension, a life insurance policy should be considered, in the case the pension receiver suddenly passes.
Next, is whether you should consider Long-Term Care insurance. According to the U.S. Department of Health and Human Services, someone turning age 65 today has a nearly 70% chance of needing some form of long-term care in their remaining years.
“Long Term Care is an important part of someone’s financial planning process,” says Chandler Winchester, CLTC® of Securian Advisors of New England. “The new hybrid policies offer some great added benefits outside of traditional long term care plans, like possible return of premium, death benefit, and non-increasing premium payments. People should review all options available to find the right plan for their circumstances. There are even annuity-based options for long term care. Potentially taking advantage of the Pension Protection Act of 2006.”
Your 50s are the years to sharpen your retirement focus. It’s time to solidify your retirement goals and maximize your savings. It’s an exciting time because you’re nearly there! You’ve worked hard all your life and deserve to enjoy retirement.
But don’t go it alone. Be sure to get the guidance you need from experienced wealth management, tax, estate planning, and insurance professionals along the way.
Ronald Albert is a Certified Financial Planner® and founder of East Greenwich-based Lincoln Capital, a financial planning and wealth management firm. He has more than 40 years experience in the financial services industry.