- Your 50s are likely your highest earning years, so buckle down and save as much as you can.
- Even if you have a budget, revisit it now, and plot out how you will get to your retirement savings goal.
- Paying for a child’s college can take a big chunk out of your retirement money, so think about how much you can realistically help.
- Don’t forget to take advantage of the discounts and perks you get once you hit your 50s!
Several years ago I met Amanda, who was in her late 50s and living in a cottage in front of a lake. She talked to me from her porch in her rocking chair sipping on some tea.
She told me how she was able to semi-retire at her early age. She started planning for this day several years ago as an executive working for a large corporation, then left to create her own business, which she built with a plan to sell it in five years and buy the cottage by the lake as her ultimate prize.
She had dreamed about this since she was a young adult. Amanda’s husband shared the vision and had a similar story of working for a large corporation, then going independent and selling his business. The only difference was that he decided to teach elementary school, enjoying the summers with Amanda and only taking on consulting projects that aligned with their values.
I hired Amanda to help me edit one of my books; she took on the project because she truly believed in the power of financial planning. After all, that was how she was able to retire before her 60s. If she can do it, so can you.
So here is the good news: If you’re in your 50s now, you have 10 to 15 years until you can start to harvest your retirement goodies. The bad news: You only have 10 to 15 years to strengthen them. You are, however, free to retire at any age you want, or like Amanda, plan to semi-retire. The idea here is to prepare for the future today and ensure you have all the things in place to get you to a comfortable retirement living.
Inside this article
Envision your retirement
First let’s clarify that retirement dream and check up on it. You should have a clear picture of what you want to be doing in your 60s. Is it living close to your children so you can visit them often? Playing golf or hiking with your friends or traveling to see the world? Any of these options will require that you have a headquarter location and will come with a list of expenses and recurring costs.
Also, consider your life expectancy and future help you may need, such as long-term care and future health care costs. At this time, you must also imagine where your income will come from beyond just your investments, such as real estate investment properties, side businesses and benefits. All this will help you get a clear idea of what your assets are and what your budget in retirement will be.
Get down to business with the numbers
Once you have a clear idea of your financial independence number (assets and budget) and how much of a gap you have before you get to it, get laser-focused on working toward your goal. Your 50s are your highest earning years and you should exhaust all of your retirement opportunities to save: 401(k), IRA, Simple IRA (for small business owners) and HSA (Health Savings Account) plans all offer you the opportunity to add catch-up contributions to ensure you have enough at retirement.
Next, create a budget as if you were living in your 60s. Ensure it reflects all your new expenses from your first step.
In addition, other moves that you must adopt now are eliminating your credit card debt and any other large debt that can get in the way of arriving at your retirement savings number. Run your credit report to see if there are any outstanding debts—you want to make sure nothing will drag you down during your retirement years.
Consider paying off your mortgages if you can, and any other large obligations that take up a large percentage of your cash flow. Remember to account for an emergency fund, and add a travel fund and a plan to increase your income to your list while lowering your expenses.
You should also check your Social Security benefits to help you in case there’s a gap between your income and your expenses. If you are a business owner, ensure you have a succession plan in place.
Think of your family
Identify how much your spouse is going to contribute to the retirement plan and how best you can complement each other. For example, if your spouse works for an employer and you are a business owner, it will be best to max out his retirement plan contributions and for you to start a retirement savings plan, too, if you haven’t already.
If you have college-bound kids, you should just supplement their education rather than fully fund it. Remember: You can borrow for college but not for retirement. So have a conversation with your children about expectations for their education.
Also, consider showing your family members and dependents a list of all your family’s expenses by percentages—so you can identify where to lower expenses and save more. Updating your beneficiaries in your retirement accounts and your estate plan is advisable at this age, too—it is a good time to update your will, health care directive and power of attorney.
Get all your perks
Take advantage of all the benefits available to you now that you’re in your 50s—you’ve earned it! For example, in your 50s, you can qualify for several benefits such as AARP discounts, and for contributing $6,500 more than the usual annual limit to your 401(k) and $1,000 more to your IRA and HSA.
Another move is to consider converting your IRA to a Roth IRA if the taxes you’re paying this year are on the lower side. You will benefit from tax-free withdrawals after you pay taxes for the conversion.
And finally, if you are working with a financial planner, ensure that the person you have chosen aligns with your own values, that you trust this person and there is no conflict of interest in terms of them offering you one product over another to get commissions. Your 50s is the perfect time to put your financial house in order.