Why 50 Is The Most Important Age For Retirees

Originally published at USA Today

When it comes to preparing for retirement, 50 can be a pivotal age. At that age, most people are just 10 to 15 years away from leaving the workforce, and time is relatively limited to save for retirement.

But with a decade or more of work still remaining, you have enough time to make changes to your retirement savings strategy to ensure you reach your savings goals.

“Add up all of your life savings — your 401(k), your investments, the money under the mattress — and then divide that by 25. Could you live on that amount comfortably for one year?” asks David Rae, a certified financial planner and founder of DRM Wealth Management. “If the answer is yes, then you may be on track for retirement. If it’s no, it’s time to sit down with a fiduciary financial planner to figure out what else you can do to secure your financial future.”

Rae’s formula of dividing by 25 is based on the assumption that people will withdraw about 4% per year from their retirement funds to live on after leaving the workforce.

With that in mind, here’s a look at what retirement and personal finance experts say you should do at age 50 to maximize the likelihood of achieving your retirement savings goals.

1. Maximize current retirement contributions

Maximizing your current retirement contributions is a common tip offered by advisers. It’s one of the easiest steps to take to help increase the amount of money you’re saving.

You can max out contributions to both personal IRAs and company-sponsored 401(k) plans.

“Starting at age 50 you’re eligible to increase your 401(k) contributions by an additional $6,000 per year, and can increase contributions to IRAs or Roth IRAs by an additional $1,000 per year,” says Matt Hylland, a registered investment adviser at Hylland Capital Management. “At age 55 you’re eligible to save an additional $1,000 per year in a health savings account, which is a great retirement savings vehicle.”

2. Consider limiting your tax exposure

There are fewer tax breaks on the horizon as you get closer to retirement, says Wayne Fisher of Fisher Financial Tax & Insurance Solutions.

If you’re saving money in a government-recommended retirement plan such as a traditional IRA, 401(k), or 403(b), you’ll eventually have to pay taxes on that money—and the tax rate may be much higher than you expect.

“Per David Walker, the former US Comptroller General, we’re heading to a future where we’ll have to double federal taxes or cut federal spending by 60%, which makes tax-free look pretty good, right?” says Fisher.

3. Carefully evaluate asset allocation

As you reach age 50 and beyond, many advisers say it’s time to start reducing the risk in your investment portfolio to protect it from market declines.

“Depending on your risk tolerance, you may want to look at adding bonds, annuities, CDs, or other safer options,” says Hylland. “As you go through your fifties, the chance of your portfolio having time to recover following a major decline will decrease. By having safe investments, you can ensure that your equity investments have time to grow and recover if needed.”

4. Drop unnecessary insurance

Many people purchase insurance coverage when their children are young or if their spouse depends upon their income.

But if your children are financially independent and no one else relies on your income, consider dropping unnecessary coverage, says Ryan McPherson, a managing member of Intelligent Worth.

“There’s little need to pay for policies that have outlived their purpose,” says McPherson. “Saved premium dollars can be directed toward retirement savings or paying down debt.”

More: How to avoid some of the more common IRA mistakes

More: Should you use a reverse mortgage to delay taking Social Security?

More: Get the biggest bang for your investment adviser bucks

5. Evaluate your health care coverage

Part of keeping your retirement plan on track involves preparing for big expenditures such as health care. In fact, health care can be one of the most expensive parts of retirement, says Mark Painter, founder of EverGuide Financial Group.

“Make sure you have your health care covered, both in terms of health insurance and also potentially long-term care,” says Painter. “You want to spend your money enjoying retirement and not simply paying medical expenses. It will be a lot cheaper to look at coverage at age 50 than when you are 65 or 70.”

6. Create a get-out-of-debt plan

Debt and retirement don’t mix. Start developing an action plan now to eliminate credit card bills and other expenses weighing you down.

“Come up with a plan now, while you have plenty of time to execute it to get out of debt,” says Hylland. “Maybe you’re an empty nester and can downsize your home and mortgage, or consolidate credit card debt and pay it off, or get rid of a car with a long and expensive loan. Create a plan today to get your debt eliminated as soon as possible.”

No matter your age, you still have time to create an effective retirement savings plan. Find out if you’re financially prepared for retirement and put these tips into action.

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