Financial Planning Through the Ages - Top Tips for Fifty Somethings

Fifty Somethings may still be raising children and caring for aging parents, but they only have 10-20 years to create the nest egg from which they’ll draw for the 20-30 plus years they will spend in retirement.  It is imperative to make retirement planning a priority in this decade.  If you are in your fifties, get on track to living your “best life” in retirement by coming up with a plan to tackle these important steps.

  1. Reinforce Your Emergency Fund. While saving for retirement is your number one priority this decade, there is no point in putting money in a retirement account that you will have to withdraw to cover an unexpected expense; so before adding additional funds to your retirement account, make sure you have enough cash set aside in a savings account to cover three to six months of living expenses.
  2. Eliminate Credit Card Debt. Your second priority this decade is to pay off lingering credit card debt, even if this means changing your vacation to a staycation or driving that older car one more year. Why? You need to save for retirement, but it doesn’t make sense to do so until you have eliminated credit card debt, given that the interest charged is likely greater than what you’d earn on assets invested for retirement. Once you have accomplished this goal, be sure it is permanently checked off your list by only charging what you know you can pay off each month.
  3. Maximize Retirement Plan Contributions. Once you have secured your emergency fund and eliminated credit card debt, kick retirement saving into high gear because you need the benefit of compounding interest to build a nest egg to replace your paycheck for 30 plus years! You will want to contribute the maximum amount possible to tax-advantaged retirement plans since they typically allow you to contribute pre-tax earnings that can then grow tax-deferred. This means you should aim to contribute $26,000 (in 2021 with age 50+ catch-up contribution) to your 401(k) given the government’s extra catch-up contribution available to you now that you are in your fifties. Self-employed individuals and business owners have even more tax-advantaged plan choices; speak with a Beacon Pointe advisor to determine your options and be sure to maximize your contributions.  If you don’t have a workplace plan or you are a non-working spouse, you can still contribute $7,000 to an IRA (in 2021 with age 50+ catch-up contribution). If you can save more, your savings will likely be in a non-tax-deferred account that a Beacon Pointe advisor can help you invest to maximize your after-tax growth of this portion of your nest egg.
  4. Start to Picture Your Retirement Life. It’s time to start developing a picture of what you want to do (charitable work, vacation, leisure activities) in your retirement years and where you might want to live (downsize, vacation home, etc.). Visualizing your goal increases the likelihood of saving towards it and helps you better estimate what your lifestyle will cost in retirement, so that you can adjust your financial plan to get there.
  5. Determine if Your Savings are on Track. Although just a rule of thumb, to retire at 67 living a lifestyle similar to what you have today, you’re estimated to need to have about seven times your current salary already saved for retirement by age 55.1 While you can get a better rough estimate of whether your savings plus your expected Social Security income will allow you to live the retirement lifestyle you desire, using an online retirement calculator, we recommend looking at your options with an advisor who can create a plan to get you on track and give you the framework to make key decisions – such as how long to work and whether to downsize or buy that vacation home.  Whatever you do, don’t plan on retiring early without doing some serious number crunching, because your nest egg will need to be much larger if it needs to sustain you for an additional five or ten years more than the typical 20-30-year retirement. Even if your retirement savings aren’t up to snuff, the good news is that you probably have another 10-15 peak earning years to get yourself on track.

 

If paying yourself first is a real struggle, take saving off the table with automatic contributions to workplace retirement plans or an IRA, or through direct deposit of a portion of your salary to your savings or investment account.

  1. Pay Attention to Your Investments. Retirement is too close for you to take a “set it and forget it” approach toward retirement savings. At a minimum, you should annually meet with your investment advisor to determine if your mix of equity and fixed income makes sense for you based on when you might need access to those funds, evaluate your attitude towards risk and to be sure that your asset allocation doesn’t grow out of balance.
  2. Be Sure You are Set for Retirement Before Considering Other Goals. You’ve worked hard so it is tempting in your fifties to ramp up your lifestyle, but you need to think of saving for your retirement years as a non-negotiable future bill, and put other goals (e.g., upgrading your home, taking expensive vacations) on the back burner until you know your retirement savings are on track. If you are a parent, it’s also natural to want to help your children with college or get into their first home, but you cannot get loans to finance your retirement, so you need to only provide financial assistance to your children using funds you won’t need for your retirement and limit your co-signing of loans to amounts you can afford to spend without impacting your retirement needs.
  3. Review Your Life Insurance Needs. Certainly, you want to make sure your family is properly cared for if you pass away prematurely, but over time you may need less coverage as your children graduate from college, you pay off your mortgage and you get closer to retirement. You might also need different or additional coverage to insure your spouse’s retirement is on track (if you have a pension that pays reduced benefits to a surviving spouse), so ask your advisor for help determining if your current life insurance coverage is still appropriate for your life today.
  4. Review Your Estate Plan. You most likely already have a plan that lays out your wishes as to who and how key people will distribute your assets and care for you and your loved ones on your incapacity or death. Now would be the time to dust it off and meet with your estate attorney if you haven’t reviewed it in the last five years or since a major life event (e.g., marriage, divorce or the birth or death of a loved one). Since life changes in a blink of an eye, you should also check that your beneficiary designations on life insurance, annuities, IRAs, and workplace retirement plans still make sense, particularly since neither your will nor trust controls how assets with beneficiary designations pass at death.
  5. Consider Long Term Care (LTC) Insurance. Living longer increases the chance that you’ll need help with the activities of daily living such as getting around, eating and bathing and an LTC insurance policy can help you cover the cost of assistance with these activities in your home or a nursing home. You may think you are too young to worry about this type of insurance, but the longer you wait, the more premiums increase and the more likely you are to have a health issue that prevents you from being able to get LTC coverage.

Consider our tips for thirty, forty, sixty, seventy and eighty somethings.

 

[1] https://www.fidelity.com/viewpoints/retirement/how-much-do-i-need-to-retire

 

Important Disclosure: This report is for informational purposes only. Opinions expressed herein are subject to change without notice. Beacon Pointe has exercised all reasonable professional care in preparing this information. The information has been obtained from sources we believe to be reliable; however, Beacon Pointe has not independently verified, or attested to, the accuracy or authenticity of the information. Nothing contained herein should be construed or relied upon as investment, legal or tax advice. Only private legal counsel may recommend the application of this general information to any particular situation or prepare an instrument chosen to implement the design discussed herein. All investments involve risks, including the loss of principal. An investor should consult with their financial professional before making any investment decisions.

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