Retirement planning in your 50s requires solid focus on the dollars and cents. It’s an influential decade ripe with financial opportunities to help you carve your ideal retirement plan.
But how can you sharpen that focus to get one step closer to reaching your “retirement number?”
Here are five must-do financial items not to miss out on during this decade.
1. You Can (and Should) Start Investing More
One important door that opens in your 50s is the ability to make catch-up contributions to your retirement accounts.
Catch-up contributions let you stash away more money than the traditional limits. Here’s a breakdown of catch-up contributions in 2022:
- Those aged 50 and older can put an extra $6,500 in their 401(k)s, 403(b)s, and governmental 457(b)s, bringing the maximum annual limit to $27,000; keep in mind that some exceptions apply for those with a 403(b)
- There’s an extra $1,000 that can be contributed to your IRA (traditional and Roth) once you turn 50
- Once you’re 55, you can take advantage of the $1,000 catch-up contribution for your health savings account (HSA)
What’s the best way to start adding more money to your retirement accounts? You can try a few different avenues:
- Increase the percentage you contribute to your 401(k); you’ll likely need to put in an extra $500 or so a month to reach the maximum amount (be sure to leave room for additional contributions like bonuses or added income)
- Bump your IRA and HSA contributions by $80 or so per month to reach the extra $1,000 by year-end
- Invest a lump-sum; if you find yourself with more discretionary income, you could redirect a set amount to your investments
Prioritizing additional investments now gives those funds more time to take advantage of compound interest. Additionally, it could help you reach your ideal retirement number and feel confident you can afford to retire when you plan to.
Find out if you have enough.
2. Know How “Extra” Income Fits Into Your Long-term Financial Plan
When you think about income, your mind likely thinks about your salary, which makes sense.
Your salary is the most straightforward way to think about income, but there are likely several other areas of “extra” income that could impact your financial situation. Two of the most influential ones are equity compensation and company benefits.
Ask yourself: Do you have access to company stock options?
Equity compensation plans are excellent avenues for companies to reward and retain top talent. It’s not uncommon for people in their 50s to access some of these opportunities. There are several different types of equity compensation depending on the company you work for, such as incentive stock options (ISOs), non-qualified stock options (NSOs), employee stock purchase plans (ESPPs), and restricted stock units (RSUs).
Understanding what you have lets you create a strategic plan to maximize these assets. Talk with your advisor about any equity compensation you have or plan to acquire.
Ask yourself: Are you making the most of your benefits package?
Benefits account for a significant portion of your total compensation, so it’s imperative to take advantage of the opportunity. You should review your health coverage options, insurance options, bonus eligibility, paid time off, professional development, and more each year.
3. Plan For Significant Upcoming Expenses
People in their 50s tend to juggle competing financial priorities — investing for their retirement, supporting their children, and caring for older relatives. It’s easy to feel sandwiched between these responsibilities and unsure how to move forward productively.
One way to feel more prepared is to plan for large upcoming costs proactively:
- Do you want to help your child pay for undergraduate or graduate school? What about financial support after they graduate, like housing or moving costs? Would you like to help them pay for a future wedding, down payment on a home, business venture?
- Have you talked with your parents about their retirement plan? What’s their health status? What is your long-term financial and personal role in caring for them as they age?
These are delicate but essential conversations to have so you can plan out your financial and emotional wellbeing. While it may be difficult to actually do, it’s often the best to prioritize your future retirement plan above other concerns.
How can you make that happen?
Set aside the money you need to invest and save for your retirement, then evaluate your options for any leftover funds. Perhaps some of that extra money could go toward helping your child through school or hiring a home care provider to assist your parents.
4. Save Money Outside Your Retirement Accounts
People in their 50s tend to be laser-focused on investing enough money into their retirement accounts. And while that’s undoubtedly important, it’s not the only place that requires your financial attention.
Be sure not to ignore other critical savings avenues such as your emergency savings, brokerage accounts, and HSAs. Investing in other areas gives you more flexibility as you near retirement.
While you can’t typically withdraw funds from your retirement accounts until you turn 59 ½, you can have more flexibility with a brokerage account or savings account. Having the option to make strategic financial choices (like doing a partial Roth conversion, for example) opens up more long-term opportunities for your money.
5. Get Serious About Debt Repayment
According to the Federal Reserve Bank of New York, total household debt climbed to $15.24 trillion as of the third quarter of 2021 — with mortgage, student, and auto debt being the top three culprits.
Compared to other generations, Gen X (those aged 41-56) carries the highest average debt balance in every category except for personal loans, as revealed by Experian’s state of credit data. Aside from mortgage debt, Gen X individuals average $32,800 of debt across categories.
The bottom line is many families are struggling with debt, and those in their 50s tend to carry the most.
Now’s the time to get serious about your debt repayment plan, especially if you want to retire with little to no debt. Here are some tips to consider:
- Know the debt you have — all of it
- What debt balances do you carry each month? Remember, not all debt is created equal. For example, there’s a significant difference between mortgage debt and credit card debt. Your house offers an opportunity to build equity, whereas your credit card debt is only holding you back. If you’re saddled with high-interest debt, prioritize paying that off first.
- Use automation to never miss a payment
- Automating your bills each month (mortgage, personal loan, auto loan, etc.) helps ensure you never miss a payment or make a late payment.
- Look into refinancing opportunities
- While there’s been talk about The Fed raising interest rates, they are still relatively low. Bankrate reported the average national interest rate for refinancing a 30-year fixed conventional mortgage is 3.35%, and that number drops to 2.58% for a 15-year. If you have the opportunity to refinance more substantial loans like your mortgage, it’s certainly worth considering.
- Pay extra on your debt when you can
- There may be some months where you have additional money to spend. An excellent way to stretch the impact of those dollars is to pay more towards your debt. Making more than the minimum payment expedites the repayment process and limits the amount of interest you pay over the life of a loan.
- Avoid taking on new debt
- As you look to invest more for retirement and whittle down your debt balance, limiting any new debt is important. Now might not be the time to spring for a new car; you may have to limit the money you can give to your child for college. Be conscious of your current debt situation to make the best financial decisions for yourself.
There are several ways to be strategic about your debt repayment. Debt won’t disappear overnight, but a solid repayment plan can get you in the black and closer to your larger goals.
Plan With a Team You Trust
Retirement planning in your 50s can be an adventure. With your plan taking shape, you have many opportunities to mold your retirement plan into something you’re truly excited about.
Our team at Abacus would love to guide you through the process of creating a retirement plan that builds on what you value most. Set up a time to meet with an advisor today.