As you head into your 50s, there are some steps you can take to ramp up your financial security. For instance, even though retirement may be years away, evaluating your progress along with other long-term goals can help you shift priorities and make the most of your money.
Here are 10 tips to help.
- Revisit Your Retirement Target Date
You may have an idea of when you’d like to stop working, but it’s wise to determine if your timeline is a realistic one. A retirement savings rule of thumb is you’ll need at least 80% of your annual salary when you stop working. According to the Social Security Administration, your Social Security benefits are designed to make up approximately 40% of this income. So the remainder must come from other sources such as retirement accounts, and/or pension plans and other investments. When it comes to taking Social Security benefits, you can begin taking them at age 62, but this can reduce your payments by as much as 30%. If you can hold off until age 67, you’ll get the full amount. To help with planning, try one of our retirement calculators.
- Make Retirement Catch-Up Contributions
If you have an eligible retirement plan such as a traditional or Roth IRA, 401(k), 403(b), 457(b) or similar retirement plan, the IRS sets catch-up contributions annually for people age 50 and up, although you’ll have to reach the limit before you can take the boost. As an example, if you contributed an extra $1,000 annually to an IRA for the next 20 years at an average of 7% interest, you’d end up with almost an extra $41,000 in retirement savings. To learn more about what amounts you can contribute this year, which varies based on the type of account it is, visit the topic catch-up contributions on the IRS website.
- Consider Long-Term Care Insurance
As you age, there may come a time when you’ll need extra help when it comes to your health, including in-home care or moving to an assisted-living facility. These services aren’t typically covered by health insurance and the costs can really add up. That’s why it’s important to explore your options and purchase it while you’re still in good health. For instance, if you develop a chronic disease, you won’t be eligible. The majority of people purchase long-term care in their mid-50s or 60s.
- Get Your Debt Under Control
Carrying around credit card debt, especially ones with high interest rates, can put a real damper on your finances, particularly if you’re trying to save more. The best way to get rid of it for good is to redo your budget and find ways to reduce spending. If you’re carrying balances on several cards, pay off the one with the highest interest rate first and then work on the others or consider consolidating the balances by transferring them to a card with the lowest rate. Once you pay it off, don’t go backwards. Use that money to boost your emergency fund. If you need help with debt management, visit GreenPath Financial Wellness for more tips and one-on-one counseling.
Practice Living on Less
Your budget is the key to unlocking ways to save. If you haven’t budgeted in a while, try this online budget worksheet from NerdWallet which uses the 50/30/20 budgeting method, suggesting that 50% of your income goes toward your needs, 30% toward your wants and 20% toward savings and debt repayment. This will help you take a hard look at those things you can do without. For instance, it may be time to downsize your living situation and put that money toward your savings. Consider the cars in your household and buy used when you can. Keep in mind that the minute you drive your new car off the lot, it loses 20% of your value. If you plan wisely, you can avoid having two car payments at the same time which will free up more cash. In some circumstances, you may even be able to get by with one car. Contact your insurance provider for potential savings on bundling homeowners, renters and auto insurance. If you like to eat out a lot, track your spending for a month. You may be surprised at how much you’ve spent on unnecessary items.
- Start New Hobbies
This doesn’t strictly fall under the category of a money move, although discovering hidden talents can often lead to a side gig or even a second career. Still, it’s important to realize that taking care of your physical and mental health is one way to boost your financial well-being, because if you were to become ill, it could affect your ability to work. Taking up hiking or yoga can help increase your physical stamina. Finding activities to keep your mind sharp such as taking a class, improving your financial acumen or even honing your cooking skills keeps you engaged in life. You might even use your life skills to teach a community class, or further your college education.
- Track Your Net Worth
By now, you’ll want to get motivated regarding your financial health. Calculating your net worth in your 50s is one way to set new goals to increase it. Simply put, your net worth is everything you own minus your debts. Your assets include all your financial and investment accounts, your home and car, and anything else you own. Your debts include home, auto, student and personal loans and credit card balances. If your debt is outweighing your assets, the ways discussed here can help you get on track. It may also be the perfect time to schedule a one-on-one debt counseling session with our partners at GreenPath Financial Wellness.
- Talk to Your Loved Ones About Your Estate Plan
If you don’t have an estate plan, it’s time to focus on creating one so your wishes are carried out if something happens to you. A simple will is a good start, but it doesn’t help if you fall ill or can’t make your own financial decisions. A trust, on the other hand, allows your successor trustee —a trusted family member, friend or professional corporate institution named by you — to manage your assets for your beneficiaries in the event of your death or incapacity. Then you’ll need to discuss your plan with those closest to you so they will understand your wishes and how to carry out your requests. Read Demystifying Estate Planning.
9. Review Your Life Insurance Plan
You may have life insurance offered through work or purchased an individually owned policy for major life milestones such as when you got married, purchased your first home or had children. By age 50, your overall financial situation has likely changed. This is a good time to review what you have in place and if it is still appropriate to address your needs now. Today’s marketplace offers a wide range of products that provide not only death benefit but living benefits as well, such as long-term care and critical care. In addition, cost of insurance have declined in recent years due to less restrictive regulation, extended life expectancies and use of technology to streamline the process. Get the help you need navigating through the review of your current policies and options available with a financial advisor.
- Get a Financial Plan
If you haven’t developed a financial strategy that addresses your current and future needs, now may be the perfect time to do so. Research shows that consumers who have a plan in place tend to feel more positive about their financial situation and are able to make more progress to create lasting security. Meeting with a professional financial advisor can help you develop a holistic plan.
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