Your 50’s are the peak of what is known as the “accumulation” phase in the financial planning world. These years are more than likely your highest earning years and often accompanied by lower than usual debt. Most of your effort should be spent focused on saving and investing as much as possible. It is also a good time to start planning for your retirement which could be as close as 5 years away.
Here are some tips to consider in your 50’s:
Play Catch Up
As soon as you turn 50 you are afforded an advantage when it comes to saving for retirement. It is what as known as the “catch up contribution”. If you have a qualified employer sponsored retirement plan your normal contribution limit (for 2021) is $19,500. For individuals aged 50 and up the limit is increased to $26,000. The limits for IRA and Roth IRA contributions are also increased from $6,000 to $7,000 during this time.
These increases present a perfect opportunity for those in their 50’s to both put more money away for retirement and reduce taxable income during their high earning years.
Pay Off Bad Debt
These years are also crucial to getting rid of unnecessary debt before entering retirement. When we talk about bad debt, we are referring to mostly consumer debt like credit cards or home equity loans that carry higher interest rates. Credit card debt is among the worst to carry for the long term. Paying these off should be a priority over investing and saving. Start with the cards with the highest interest rates and work down form there. You can also investigate transferring the balance to a zero-interest credit card and pay as much of it off as you can.
Heading into retirement with more than normal consumer debt could prove disastrous to your plan.
Start Thinking About Retirement
Although it still may seem like an eternity from now it will come sooner than you think. When it comes to retirement planning, we always say “it’s never too early or too late to start”. Start thinking about what retirement looks like to you. Are you going to downsize and work part-time? Do you plan on traveling extensively? Writing out your retirement goals can help give you a clear picture of how to get there. It should also give you a clear idea of your annual costs which is a great first step for planning.
Plan For Long-term Care
No one likes to talk about it, but more than half of all 65-year-old Americans will need long-term care at some point in their lives. Thinking about how you could cover that expense now could help save you money over the long term.
- If your employer offers a health savings account (HSA) option, it could be a good opportunity to build an account for future expenses. Like a flexible spending account, the money is contributed pretax. Unlike an FSA, the money doesn’t have to be spent, but can potentially grow over years. And when used for qualified medical expenses, withdrawals are exempt from taxes as well. The maximum annual HSA contribution for an individual is $3,500, but people over age 55 can bump that up another $1,000.
- Shop around for long-term care insurance. Standard health insurance does not cover services like in-home assistance with daily activities, and those expenses can really deplete your retirement savings. The price of premiums increases as you age, so it may be a good idea to meet with a financial advisor now to discuss if this coverage should be part of your financial plan.
For more information on getting ready for retirement in your 50’s check out our blog 10 Years from Retirment.
Your 50’s is a time to focus on building your wealth and preparing for retirement. Whether you have done plenty of planning or no planning it may be a good time to connect with a financial advisor. If you would like to find out how we help our clients during this stage of their lives, feel free to call us at 610-825-3540.