Planning for Retirement: Finances at 50
Being north of 50 means one is no longer at liberty to punt questions of planning for retirement to “the future.”
If you have a retirement date in mind, you need a plan.
If you have a lifestyle in mind, you need a plan.
The future is now.
Evaluate your retirement savings
Calculate your retirement savings target considering your desired lifestyle, expected expenses, and future healthcare costs. Engage a financial advisor to help you set a realistic savings goal.
Once your goal is clear, review your retirement accounts, such as 401(k)s, IRAs, and pensions. Understanding the balances, investment performance, and contribution amount will shed light on your progress towards retirement.
Consider utilizing catch-up contributions to boost your retirement savings. In 2024, those aged 50 and older can contribute an extra $7,500 to their 401(k) over the regular $23,000 limit. For 2024, IRA contributions have a catch-up amount of $1000 for anyone over 50, allowing an annual limit of $8000.
If you still have a mortgage, consider whether it makes sense to accelerate payments or refinance to a lower interest rate. Entering retirement debt-free can significantly reduce financial stress and lower monthly expenses.
Scrutinize your investment portfolio
As retirement nears, your risk tolerance may shift. Evaluate how comfortable you are with market volatility and adjust your investment strategy accordingly. Then, as you track your portfolio throughout the year, update when you may step away so that your portfolio is protected for when your income source shifts from your salary to your portfolio.
Diversification, such as across capital preservation, high income, and global equity, is critical, particularly as you near retirement at 50. Spreading your investments across various asset classes and sectors helps minimize risk and increase potential returns.
Craft a comprehensive budget
Gain financial control and work towards your long-term goals: Monitor and evaluate your expenses, spot potential savings areas, and ensure you are allocating enough funds for retirement. Budgeting apps such as CoPilot or Quicken Simplfi can be great tools for tracking your expenses, understanding where your money goes, and making informed decisions about your spending. Small changes, like negotiating bills or switching to a less expensive cell phone plan, can free up more money for your financial goals.
Strategize for healthcare expenses
Examine your current health insurance policy to ensure it meets your needs, and consult with a professional to ensure adequate coverage. Consider long-term care insurance to help cover costs of nursing homes, assisted living, and in-home care services—factor in potential medical costs, including routine check-ups, medications, and any ongoing health conditions. An emergency fund for healthcare expenses can provide peace of mind. Regularly review your coverage and adjust your plan as needed.
Formulate a retirement income strategy
Explore various retirement income sources to ensure a comfortable financial future. Diversifying your income sources is key to minimizing risk and maximizing financial stability. While Social Security benefits may form a significant part of your retirement income, it is crucial to explore other options such as pensions, 401(k) plans, IRAs, or investment properties.
Planning for retirement: Tax considerations
Effective tax planning can lead to significant savings, especially when withdrawing from retirement accounts. Understanding the tax implications of your savings and investment strategies can prevent unwelcome surprises. One strategy is to set aside excess savings into a taxable account to access these dollars without worrying about income taxes. Re-evaluating concentrated stock positions and trimming off each year as you lead up to when you step away can also help negate high capital gains tax in one given year.
Turning 50 is more than a milestone—it’s an opportunity to reassess and revitalize your financial strategies to ensure a secure and fulfilling retirement. By focusing on these strategic areas, you can take control of your financial future and enjoy peace of mind with well-planned finances.
