In your 50s? Don’t delay financial planning.
Our 50s can be a decade of significant transition. The kids are older and more independent and may have moved out. Your expenses and priorities are changing. You could even decide to downsize your home in this season of life as you prepare for retirement.
Financial planning during these years can be tricky and yet extremely critical. Your retirement date is within the next 10-15 years and you’re feeling the urgency of doing everything you can to secure your financial future.
And if you’re behind on your savings, you might *really* be feeling the pressure – as well as some mix of anxiety and fear thrown in.
When we operate out of these negative emotions, it’s difficult to make decisions with clarity and certainty. We can become overwhelmed by *all the things*, and then decide to deal with it later to give ourselves some relief.
But this lack of action just pushes the consequences further into the future.
The longer you put off dealing with the present to secure your retirement, the farther the results will reach into your older years.
So, don’t delay! If you’ve been procrastinating because you don’t want to face the mistakes you’ve made, or because you’re confused and you don’t know where to start – take the first step and commit to make a change today.
To get you started, this post includes a list of 12 tips for financial planning in your 50s. Follow these smart strategies to help you get your financial planning off the ground.
Is it too late to save for retirement at 50?
Whether you’re in your 40s, 50s, or even 60s, it’s never too late to start saving for your retirement.
Of course, the closer you are to retiring, the less time you have for compound interest to work its magic. This means you’ll need to focus on making larger deposits to your retirement accounts.
Fortunately, if you’re 50 or older, you can make “catch-up” contributions to your 401(k) or IRA and give your savings an extra boost.
If you own a home, you could consider downsizing to reduce your living expenses. Just make sure the market is in your favor as the seller, and the location you’re moving to is within your retirement budget.
Another way to catch up with retirement savings is to work past your target retirement age. Drawing in just a few more years of income could make a significant improvement to your financial security.
All of these ideas work best if you start taking action on them earlier rather than later.
You need to maximize the time you have left while you’re still earning income.
As an example, if you can contribute $24,000 annually for 20 years into a fund that provides an 8% rate of return, your savings would grow to over $1 million!
If saving $2,000 a month seems impossible for you, don’t dismiss that goal yet! Take a close look at your current expenses and income first to find any potential.
You may be able to take steps to cut expenses, and find opportunities to generate more income. The more you can add to savings, the faster your retirement accounts will grow.
Apply the 12 tips listed below to your financial planning, and start building the retirement you dream about!
Tips for financial planning in your 50s to build wealth
1. Get out of debt
When you’re trying to build retirement savings in your 50s, getting out of debt should be at the top of the list.
The last thing you want to do with your retirement savings is use it to pay off stuff you purchased before you were retired.
You need to stretch those retirement dollars as far as they’ll go, and if you’re still paying off debt in retirement then you’re working against yourself.
Do everything you can to pay off those credit cards, that student debt, your medical bills, any personal loans, and even your mortgage!
Yes – I do believe you should pay off your mortgage *before* you retire. This is one of the best ways to stretch your retirement savings and put yourself in a financially secure position.
Of course, that’s not possible for everyone. It’s a great goal to shoot for, but maybe there’s just no way that will happen in the next 10-15 years.
If so, then definitely focus on your highest-interest debt first, and work down from there. Look into refinancing your mortgage to get a lower rate.
And definitely don’t add any more debt to the pile (if you can help it)!
2. Invest for the long-term
As you get closer to your retirement date, you’ll want to reassess your risk exposure in your investments.
You don’t want to subject your savings to a high degree of volatility, because once you retire, you really need your savings to keep growing – not shrinking!
However, you don’t want to be too conservative, either. Building wealth in your 50s will require a moderate level of risk. Otherwise, your savings won’t keep up with inflation and you’ll run out of money.
You need the power of compound interest to ensure your savings will last well into your 90s.
And sticking with “safe” investments, like bonds or CDs, won’t give you the returns you need to do this.
But remember – age 65 is not the finish line.
It’s actually (in a way) the starting line and you may still have 30 years after that to ride all of the market ups and downs, inflation, and everything else that will happen to your investments.
So, don’t be *too* conservative. Invest for the long-term, so your savings will support you for the rest of your life.
3. Play catch-up
Being over 50 has its benefits. Some of those are the “catch-up” contributions you can make to various retirement funds.
For the employer-sponsored 401(k) plan, if you’re 50 or older, you can invest $6,200 over and above the standard contribution limit of $19,500.
For an IRA, you can put in an extra $1,000 over the annual $6,000 contribution limit. (These are 2020 figures.)
That means, if you have both a 401(k) and an IRA, you can add an additional $7,200 every year to your savings. But – you have to be 50 or above.
This is a great way to supercharge your savings, *especially* if you’re behind.
If you only have a 401(k), you’d be wise to start an IRA as well. Then, do everything you can to max out both accounts every year.
Be as aggressive as you can, as early as you can, so those extra savings can really benefit from compound interest.
4. Cut the cord
You know, the one connecting your money to your kids’ comfort.
Stop paying for their car insurance, cell phone bill, monthly rent, weekly allowance, and yes – even their college tuition.
You *must* put your future first. You *must* make your financial security the priority.
Because, if you don’t, you could unknowingly be starting a dysfunctional cycle for generations to come. Let me explain:
Imagine that you’re in your 80s, and you don’t have any savings left. The money you had didn’t last because you just didn’t save enough. And you didn’t save enough because, well, you just love your children so much.
You wanted to make them happy with a new car, or their own apartment, or a new cell phone, or a vacation to Hawaii, or four years of college. So, you paid for it.
But now that you’re much older and can no longer work, you’ve spent all your savings and you have to rely on your kids to take care of you.
And how do they do that? By using their money for your living expenses, your in-home healthcare, your prescriptions, etc.
Can you guess what this does to their financial future? Right.
It keeps them from building the savings they’ll need for their own retirement. And the cycle continues.
So, don’t start the cycle. Do your kids a huge favor and stop paying for their stuff. They are young and capable and can generate an income for many years to come.
You, on the other hand, don’t have as much time left and your working years are coming to a close.
To strengthen money management in your 50s, put yourself first now – so your kids don’t have to take care of you later.
5. Live below your means
This is so anti-American-culture, but like Dave Ramsey says:
You’ve gotta live like no one else, so later you can live like no one else.
(Okay, I admit it took me a while to figure out what he was really saying. Basically, do what most people aren’t doing today so you can have a life most people don’t have later.)
When you learn to live on less than you earn, you build the discipline it takes to delay gratification today so you can have a better life later.
You strengthen your capacity for patience, contentment and self-control. You foster a greater sense of gratefulness. And all of this creates a deeper level of emotional maturity.
In other words, you become a better version of yourself.
You also prepare yourself for a lifestyle in retirement that may require a lower income.
If you’re already content with living on a fraction of your income now, then you won’t need to compromise when you stop working. You’ll already be used to living at that income level.
And last (but not least), you give yourself the opportunity to save more, invest more, and put more toward your retirement. When you widen the gap between what you make and what you spend, saving money in your 50s becomes easier.
Learn to avoid lifestyle inflation, so you can create the retirement you dream about.
6. Re-examine your goals
Life happens. Things change. We change.
That’s why it’s always a good idea to review those goals you made a while ago and make sure you’re on track – and that it’s still the track you want to be on.
There’s nothing wrong with pivoting when you decide some of your goals are no longer relevant or desirable.
The last thing you want to happen is realizing in your first month of retirement that you’ve prepared for a lifestyle that’s no longer appealing to you.
Maybe there was a point when you really wanted to spend a lot of time traveling in retirement, so your plan was to sell your big home and just rent an apartment. But, then … grandkids.
Now, you can’t imagine not being around them. Now, you want to be close to them all the time, and have the space for extra bedrooms and a playroom and a big yard.
So, pull out your list of goals and go over them with your partner.
Ask yourself if there’s anything on that list that you want to change.
Then adjust your plan and pivot.
The earlier you adjust, the better. Give yourself enough time and space to make changes so it doesn’t cause undue stress and worry later.
7. Create additional income streams
In retirement, you’ll have guaranteed income (like social security and/or a pension).
You’ll also have what’s called potential income (like from your investments).
Between both, you need to make sure they cover all of your lifestyle expenses.
One way to ensure you’ll have enough to live on in the future is by creating additional income streams today.
You can either build passive income streams which require little to no participation from you, or you can start building income from something that’s more hands on.
A passive income stream would be something like owning a rental property, or some type of online business that generates income from affiliate marketing and advertisements. Another example is investing in dividends.
But you might have a hobby that you’d like to make money with, such as baking or sewing or writing or painting.
With any skill you’ve developed, you can create an additional income stream with it.
You could wait until you’re retired to start building more income, but if you start now then that extra money will already be established and more reliable.
8. Buy the insurance policies you’ll need
Insurance is a great way to protect yourself from the unpredictability of life. But, you have to have it *before* life surprises you.
Now that retirement is on the horizon, make sure you have your insurance plans in place.
Look into long-term care, and also a health care plan to supplement Medicare. You may also want to consider travel insurance if you plan on traveling a lot, and an umbrella policy that will give you additional coverage.
If you have life insurance, you might want to think about dropping it after retirement. Talk to your financial advisor to decide if continuing to pay the premium will still be worth the benefit later in life.
And lastly, set up a Health Savings Account so you can start saving extra funds for medical expenses (tax-free).
Educate yourself on the critical role of insurance in your retirement planning, and protect the future you’re creating.
9. Get an estate plan in place
Don’t wait to legally establish your wishes for after death. Otherwise, someday it might be too late.
It’s important to at least have a will, but you may also want documents like a medical and financial power of attorney, or even a living trust.
Think about the legacy you want to create today that will bless your loved ones in the future.
Depending on the size of an inheritance, or the complexity of your asset distribution, setting up a trust could be a wise choice. Talk to an estate planning attorney to determine what’s best for your situation.
10. Hammer out the details
As that long-awaited retirement date gets closer, you’ll need to focus more on specifics.
For years you may have just glanced at the map occasionally to make sure you’re on the right road. But now you’re getting closer to your destination, and you’ll need to keep a closer eye on it.
You’ll want to plan your withdrawal rate, adjust your investment mix, make decisions about where you’ll live, and have a social security strategy.
When the gap gets smaller between being someone who’s employed and someone who’s retired, it’s important to make sure your plans are gaining clarity. The closer you get, the more “in focus” they need to be.
11. Meet with a financial planner
Getting the advice of a trustworthy professional can help you feel more confident about your financial choices. Another set of (knowledgeable) eyes can show you the difference between a good option and a better one.
You also want to confirm that everything has been set up for your optimal benefit. You don’t want to find out later that you could have saved more on taxes or your social security strategy resulted in lost income.
Also, a financial planner can show you savings and investment vehicles that you may have been unaware of.
One of the best things you can do as you get closer to retirement is meet with someone who is a licensed professional.
Just make sure they are also a fiduciary, which just means they are bound (ethically) to act in your best interest.
12. Pick the ONE thing
If you’re a late starter in retirement planning and saving, you might feel overwhelmed by everything that needs to get done for a successful retirement.
Let me offer a word of encouragement: it’s not too late to save for retirement at 50!
To overcome the overwhelm, don’t think about *everything*. Instead, just pick ONE thing.
What is the one thing you can do right now that will get the ball rolling in the right direction?
Do you need to focus on getting out of debt?
Perhaps you think you should generate some more income.
Or maybe the worry of not having a will has become too heavy, and that takes priority.
Pick one thing, and focus on that until you’re ready to move on to the next thing.
Don’t let your brain trick you into not doing anything, just because you’re confused or feeling anxious. Don’t let fear hold you back from facing your future head-on.
Put your future first and take action today, so you can start building the secure retirement you dream about.
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