Your 50’s are an exciting period in your life. Any children are probably out of the house, and maybe you even have your first grandchildren. You are likely at some of the higher earning years you’ve ever had, with lower expenses; you may be winding down a career and finding more free time.
Your 50’s provide several opportunities to prepare for retirement, whether that retirement is planned for your 50’s, 60’s or even 70’s! Here are some of the things people in their 50’s should be doing to prepare for retirement.
Take Advantage of Catch-Up Contributions
Starting at age 50, people can make what are called “catch-up” contributions to retirement accounts.
For 401k/403b plans, in addition to the $18,500 annual limit, those age 50 above can contribute an additional $6,000 each for a total of $24,500.
For IRA’s in addition to the $5,500 annual limit, people age 50 and above can contribute an extra $1,000 each year, for a total of $6,500.
Invest in a Taxable Account if Retiring Early
There are specific challenges facing those retiring early, not the least of which is fees on withdrawals on tax-deferred accounts before full retirement age. I have met people who saved diligently in retirement accounts and thought they made all the right moves, only to find out fees and taxes made them unable to retire early with the lifestyle they had hoped for
If you plan to retire early, you may need several years’ worth of spending set aside in a taxable account to live on while you wait to access your tax-advantaged accounts and claim Social Security.
Look up Pension and Social Security Benefits
Income streams like pension and social security benefits make up a large amount of the typical retiree’s spending. Having a general idea of how large these income streams will be is very important for retirement planning purposes, but I have found very few people in their 50’s have any idea what they can expect to receive.
For people with a pension or defined benefit plan, you will want to familiarize yourself with your benefit calculation (usually a certain % of your income x years of service) to arrive at a rough estimate of your benefit amount when you retire.
You can also look up an estimate of your Social Security benefits here:
https://www.ssa.gov/benefits/retirement/estimator.html
Review Your Investments
By the time they reach their 50’s, many people have accumulated different investments and investment accounts over time as they switched jobs and their financial situation evolved. For this reason, is it very important for people to take a full inventory of their investments.
In addition to just getting a grasp on what you actually own, you will want to make sure your portfolio is low-cost, diversified, and aligned with your financial goals as you make the final approach towards retirement.
You will also want to check which investments you have in different types of accounts, as there may be options to save on taxes by holding the right investments in the right types of accounts.
Review Your Asset Allocation
In your 50’s your net worth and investment account balances are likely the highest they have ever been. This means that any investment decisions made during this time can have a large impact on your retirement.
The most important decision for investors to get right is their asset allocation, which is the mix of stocks vs. bonds in their portfolio.
In order to provide the rising income stream needed to fund multiple decades of retirement, people will likely need at least a portion of their portfolio dedicated to ownership in the great companies of the world (stocks).
But that needs to be balanced with the very real possibility of a temporary decline in the few years before or after retirement when account balances are likely the highest they will ever be and the most is at stake. The right allocation will take both of these issues into consideration and be determined by what is required to achieve your financial goals.
Your asset allocation is not something you can set and ignore as you transition into retirement. My research indicates that when you are 3-5 years from retirement, it is actually helpful to reduce stock market exposure in your portfolio down to 40 or 50% to reduce any negative impact from a bad market prior to retirement.
For the same reason, it also is beneficial to keep this allocation during the first few years of retirement. You can then adjust your allocation to stocks higher if you need to.
Review Your Financial Plan
Reviewing a financial plan can be extremely helpful in your 50’s, when your life may have changed dramatically from just a few years ago. This is a critical decade, as you still have time to make any last-minute adjustments to put yourself on track for the retirement of your dreams.
If you don’t already have a financial plan, I’d highly recommend you get one. A financial plan will help you decide on the goals that are most important to you and determine the path you will take to achieve them. How much you need to save, when you can retire, and how much you withdraw from your investments each year should all be informed by a financial plan.
Retirement planning is complicated, and you may want to seek the help of a professional to build your financial plan. Meeting with a CERTIFIED FINANCIAL PLANNER™ professional is a good idea, as he or she will know how all the different pieces of your financial situation fit together into a comprehensive financial plan.
Learn more: What Does a Financial Planner Do?
There are even retirement-specific designations financial advisors may have; my sons Daniel and David both have the Retirement Income Certified Professional® (RICP®) designation, for example.
Plan How You Will Spend Your Time
In my experience, the people who ultimately go on to have the most fulfilling retirements, plan in advance for how they are going to spend their time.
If you plan to pick up new hobbies or activities during retirement, start looking into them now. Find out what you really enjoy and weed out what sounded better on paper than in real life. Get familiar with the costs of the activities you plan to pursue in retirement and make sure your financial plan accounts for them.
You may want to develop a retirement activity plan to spell out exactly how you will remain physically and mentally sharp in retirement by participating in activities you enjoy.
Learn more: How Will You Spend Your Retirement?
Final Thoughts: Plan Today for a Successful Retirement
Your 50’s are an important decade as far as setting yourself up for a successful retirement. Some things you can do to prepare yourself, but some may require the help of a financial professional, so don’t be afraid to seek advice with some of the more complicated aspects of preparing for retirement.
The window of time before you make the leap into retirement is closing, and it is important to start planning for retirement today while you still have the time to make changes, if necessary, to put yourself on a path toward retiring on your terms.
With careful planning in advance, you will be on your way to retiring when you want, with the best lifestyle possible!
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