The 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 honed 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, bringing you closer to the retirement you’ve hoped for. Here 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, your debts and bills — and map out your strategy for retirement. Seeing the details of your finances and setting goals for life beyond work will expose the gap, if any between your plans and your savings and 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. Learn how to find a trustworthy adviser by reading Ask Stacy: Do I Need a Financial Adviser, or Can I Manage My Money Myself?
One key question for screening financial advisers: “Are you required to uphold the fiduciary standard?” What this means is that the adviser is required to put your financial interest — not theirs — first. If the answer is anything but “yes,” keep looking. Here are sources for fee-only advisers:
The Garrett Planning Network, an association of fee-only planners.
The Certified Financial Planner Board, which certifies practitioners and sets professional standards.
GuideVine matches people with financial advisers. Read bios, watch videos and look for fee-only advisers.
3. Use retirement calculators — with caution. By your 50s, you should be able to 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. One respected calculator is ESPlanner, a free tool created by Boston University Professor of Economics Laurence Kotlikoff. Three other calculators are:
Vanguard’s Retirement nest egg calculator
The Flexible Retirement Planner
AARP Retirement Calculator
Two problems with calculators: They require you to make impossible guesses about the future rate of return on your investments. Also, “[m]ost online retirement calculators do not accurately account for taxes,” says About Money’s Retirement Planning in your 50s.
Because of these issues, it’s a good idea to play around with several different calculators to see how your results can vary.
4. Supercharge savings. If life’s demands have made it hard to save for retirement, your 50s offer a good chance to catch up. You’ll see if you are saving enough by following the three steps above, mapping your retirement, assessing your situation and using calculators to estimate your retirement income.
If there’s a gap between savings and your needs in retirement, ramp up your savings. Shoot for saving 20 percent of your income. If that’s too big a change, “set aside just 5 percent now and make a plan to ramp up your savings by 1 percent every quarter until you reach your target goal,” suggests Interest.com.
5. Maximize retirement plan contributions. The IRS has special rules to encourage savers who are 50 or older to ramp up savings for retirement. Here’s how to take advantage of these rules:
Max out your employer’s retirement plan contribution. If your workplace matches a portion of your retirement contributions, take full advantage of the free money. If your employer matches up to 3 percent, for example, save at least 3 percent to capture that gift. According to U.S. News:
The most common employer match is 50 cents for every dollar saved up to 6 percent of pay, according to Vanguard data. For a worker earning $60,000 a year, this employer match could be worth as much as $1,800.
Max out your retirement savings contribution. IRS rules let workers contribute up to $18,000 to a 401(k) plan in 2015. That’s money you can save tax-free (you’ll pay the income tax when you take it out in retirement).
Max out your “catch-up” contributions. Savers age 50 and up may also contribute an additional $6,000 to a 401(k) account in 2015. That’s $24,000 total you can save — tax free — if you are able.
Max out IRA contributions. The IRS’ 2015 maximum contribution to an IRA account is $6,500 if you are 50 or older ($5,500 otherwise).
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 tax-deferred savings accounts often offer a better return than paying down a mortgage. The reason: tax savings. If you can do both that’s even better, of course. 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. Read Ask Stacy: Should I Save More for Retirement or Pay Down My Mortgage? to learn about the pros and cons.
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 nonmortgage 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. But, beware of sleaze bags masquerading as credit counselors! The bad ones make your debt problems even worse. Learn where to find good help: Is 2015 the Year to Tackle Your Debt? 10 Tips to Find Free or Low-Cost Help.
You’ll find lots more help at Money Talks News. A few good reads:
8 Smart Ways to Pay Off Debt Fast.
Resolutions 2014: Kill Your Debt and Then Write Its Obituary.
How to Pay Off $10,000 in Debt in 2015 Without Breaking a Sweat.
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 $155 to buy goods and services today that you could have bought with $100 in 1995, according to this Bureau of Labor Statistics inflation calculator. Inflation is low currently: It was 1.6 percent in 2014. But, historically, it has been higher and takes a big bite out of savings.
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 3o years, there’s time to recover if some of your investments lose value. Keeping 60 percent of your investments in long-term growth with the remainder in more conservative investments is a good idea even after retirement, Ohio financial planner Doug Kinsey tells Jean Chatzky at DailyFinance.
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 the family’s debts, savings, investments and plans in order to take over the financial reins in case one dies or becomes disabled.
10. Consider dropping life insurance. One place to cut expenses could be dropping your life insurance premiums. Do it only if, after careful consideration, you find that the insurance 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 if 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 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 pays some or most costs should you become unable to care for yourself, your 50s is the time to do it. Wait much longer and premiums become prohibitively expensive. Also, you could develop health problems that disqualify you for coverage.
The problem is, long-term care insurance is extremely expensive. The cost of coverage rose nearly 9 percent in 2014 alone, according to the American Association for Longterm Care Insurance, which says:
A healthy 55-year-old man can expect to pay $1,060 a year for $164,000 of potential benefits, compared to $925 last year. … The average cost for a 55-year-old single woman is $1,390, an increase from $1,225 a year (2014).
What’s a prudent person to do? After all, the cost of nursing home care currently is about $205 a day ($6,235 a month) for a semi-private room, according to the federal government, at LongTermCare.gov.
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 Have 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. To get started read Resolve to Budget This Year: Here’s How to Do It Painlessly.
What are your money tips for people in their 50s? Share your experiences.
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