6 Things You Can Do in Your 50s to Better Prepare for Retirement
No matter how much (or how little) you’ve saved for retirement, you can always take steps to better prepare for your golden years no matter how old you are. So, whether you just turned 50 or are in your mid-to-late 50s, let’s discuss six actions you should take, accordingly.
Take advantage of catch-up contributions
When you turn 50, the IRS allows you to make annual “catch-up contributions”: meaning additional contributions you can make above standard annual limits to your 401(k)s and IRAs. This feature is offered to encourage savings and help ease the financial burden of retirement.
If it makes sense in your overall plan, you should take advantage of this benefit as tax-deferred growth can significantly boost your retirement savings. As of 2022, you can contribute $20,500 to a 401(k) and $14,000 to a SIMPLE 401(k). However, catch-up contributions allow you to kick in an extra $6,500 for a 401(k) and $3,000 for SIMPLE 401(k) accounts. The 2022 contribution limit for Roth and Traditional IRAs is $6,500, but with catch-up contributions, you can add an extra $1,000.
Eliminate unnecessary investment risk
It’s typically wise to invest more conservatively as you get older. The percentage of equity holdings (stocks) invested in your retirement accounts should decrease, accordingly, to reduce risk—which is especially critical as you may lack the luxury of waiting for a market bounce-back after a dip.
While the actual number varies based on individual circumstances, a general rule of thumb is to subtract your age from 100: with this number reflecting the percentage of your portfolio to keep in stocks. The remainder should be comprised of “safe” assets such as bonds and CDs.
It’s important to know that due to longer lifespans, some experts have actually modified this rule and now recommend that you subtract your age from 110 (or more!) to ensure you don’t run low on funds.
Despite this widely available knowledge, a recent Fidelity report claims that investors—specifically 37.6% of Baby Boomers—are exposing their retirement accounts to unnecessary risk by investing too much in stocks.
Examine your long-term care options
While everyone’s situation is different—especially if you have a family history of illness at a young age—experts recommend that you get a long-term care policy (as a stand-alone product or through your life insurance policy) in your mid-to-late fifties so you can lock in a lower premium.
There are several reasons for this, primarily that you must qualify for long-term care insurance—meaning you must be healthy to buy coverage. As many people see a slight decline in health in their 50s, it’s easy to see why 24% of people between ages 60-64 who submitted long-term care applications were denied in 2019. This number increased to almost 33% for those ages 65 to 69 and was significantly higher for those age 70 and older.
Another reason to buy a policy when you’re younger is that long-term care premiums are based on the age when you apply. That said, you don’t want to purchase a policy too early since people aged 70+ are responsible for more than 95% of long-term insurance claims. In other words, if you buy a policy in your 40s you’ll likely pay premiums for more than two decades before actually filing a claim.
If you don’t want to pay for a policy (after all, they aren’t cheap), you’ll need to at least prepare for long-term care. According to various websites, including Genworth.com, national monthly median costs are $5,148 for a home health aide, $4,500 for an assisted living facility, and $9.034 for a private nursing home room. Long-term care costs also rose between 1.71% and 3.64% a year, on average, between 2004 and 2019. In anticipating these costs, it’s critical to plan in advance.
Consider a Health Savings Account
A health savings account (HSA) is a type of savings account you can use to pay for qualified out-of-pocket healthcare expenses: including deductibles and copays. While these types of accounts are specifically designed to help people with high-deductible health insurance plans (HDHP), they are sometimes also an excellent way to save for future healthcare expenses as account balances can roll over every year. When you turn 55, you can even supplement the account with an extra $1,000 for “catch-up” contributions.
Get started on an estate plan
Estate planning involves creating a blueprint for the preservation, management, and distribution of assets in the event of your death and/or mental incapacitation—and, contrary to popular belief, it’s not just for the wealthy!
At the very least, ensure the beneficiaries on your accounts and policies are up to date and that you’ve completed a will and medical directives.
Reduce Debt
Back in 2019, Experian claimed average credit card debt for people in the 50s was $8,364. For comparison’s sake, the average balance for those in their 60s was $6,832 at the time. While balances did decline somewhat in the two years that followed, you’ll need to start tackling credit card debt in your 50s (if you haven’t already) since it’s often the most expensive form of debt to carry. An idea to kickstart this? Make more than just the minimum required payment each month.
Moreover, a Harvard Joint Center for Housing Studies report mentions that 46% of homeowners between the ages of 65-79 (and one in every four people aged 80+) are still paying off a mortgage. Considering that housing costs (including mortgage, rent, property tax, insurance, maintenance, and repair fees) represent the largest expenses for retirees, downsizing is sometimes a viable option to climb out of debt.
Irrespective of the type of debt you have, eliminating it is critical to enjoying your golden years since retirement isn’t cheap. According to the latest Consumer Expenditure Survey from the U.S. Bureau of Labor Statistics, the average retiree household (led by someone age 65 or older) spends $48,872 per year.
In sum: how to prepare for retirement in your 50’s
If you’re like most people, you likely haven’t yet developed a concrete vision of your retirement. Considerations regarding when to retire, where to live, and how to fill time during retirement may still elude you—and that’s fine. However, these details shouldn’t deter you from getting serious about the next chapter in your life, and taking the steps mentioned in this article can help.
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Vision Retirement is an independent registered advisor (RIA) firm headquartered in Ridgewood, New Jersey. Launched in 2006 to better help people prepare for retirement and feel more confident in their decision-making, our firm’s mission is to provide clients with clarity and guidance so they can enjoy a comfortable and stress-free retirement. To schedule a no-obligation consultation with one of our financial advisors, please click here.
Disclosures
This document is a summary only and is not intended to provide specific advice or recommendations for any individual or business.
