Financial Moves to Take in your Fifties

Your fifties are generally a time of increased disposable income.  You’re probably in your highest earning years, financial commitments to children have dropped significantly and mortgage payments require a smaller portion of your income.  Use this opportunity to pay-off debt and super charge your retirement savings.  

Evaluate your current situation and determine how well prepared you are for retirement.  Calculate the value of your retirement nest egg and develop a retirement budget.  Work with a fee-only financial planner or use some on-line calculators to find out how you are positioned for retirement.  Unfortunately, most American’s are playing catch-up to meet their retirement goals.   

Review your current spending habits and tighten your belt to save at least 20% of your income.  Strive to maximize your 401(k) or 403(b).  In 2019 you can contribute up to $19,000 plus a catch-up of $6,000, if you are age 50 or over.  In many cases, you will also benefit from an employer match.  Additionally, you can contribute up to $6,000 plus a catch-up of $1,000, if you are age 50 or over, into a Roth or Traditional IRA.  There are income limitations on Roth IRAs and deductible traditional IRAs. If you are self-employed consider opening a Simplified Employee Pension (SEP) or a Savings Incentive Match Plan for Employees (SIMPLE).

Pay-off high interest debt including credit cards, consumer debt and private student loans.  Also consider paying off your home mortgage, before retirement, to significantly decrease your non-discretionary retirement expenses.

This is a good time to revisit your investment asset allocation.  The appropriate asset allocation depends on your personal situation.  If you had an aggressive portfolio during your 30s and 40s it might be prudent to make some adjustments as you approach retirement. However, don’t go too conservative, you need to keep a reasonable portion in the stock market for long-term growth.  At age 50, you may depend on your investments for another 40 to 45 years.   This gives you a long-time horizon to ride out fluctuations in the market.  

As you approach retirement and anticipate taking distributions, keep enough to cover at least 5 -7 years of distributions outside of the stock market, in cash, CDs and bonds.  This will provide liquidity to cover expenses when the market is down.

If you have high-deductible health insurance, open and maximize your contribution to a Health Savings Plan (HSA).  An HSA is deductible from current income, grows tax free and can be withdrawn tax free if it used for qualified medical expenses.  

Evaluate your insurance needs, if your children are grown and you have adequately saved for retirement, you may no longer need life insurance.  Use the premiums you were paying to supplement your retirement plan, pay-off your house or help pay for long term care insurance.  Your fifties are a good time to evaluate the need to buy long term care insurance and decide how to fit the expense into your budget.