The fifth decade of life is a pivotal time for retirement planning and preparation. By the time you hit 50, you’re no more than two decades from your likely retirement date. That means you’re at an ideal time to revisit your retirement plans---close enough to retirement to have a realistic idea of how you can spend your golden years, but far enough away that you still have a chance to make necessary course corrections.
Review your retirement savings
Hopefully, you’ve long since calculated how much you need to save for retirement. If not, now is a great time to do it. Look at your retirement savings account statements and compare their balances to how much you plan to have by the day you retire. Are you on track to hit your goal? If not, it’s time to crank up your contributions to a higher level.
Boost up your contributions
If you’ve been procrastinating on making any or larger retirement contributions, now is the time to turn things around. Turning 50 makes you eligible for catch-up contributions to both a 401(k) and IRA retirement accounts. That means in 2017, you can contribute $24,000 per year into your 401(k) and $6,500 per year into an IRA account.
Maxing out your annual retirement account contributions every year starting at age 50 is an excellent way to breathe some life into a small retirement savings account. If you manage to save $24,000/year (max) into a 401(k) from age 50 to age 70, earning a respectable (but conservative) 6.0% per year you’ll accumulate $1,000,000 and if you save $6,500/year into an IRA account you’ll accumulate $253,400 at age 70. That means working until age 70. This is very worthwhile because the sum of both 401(k) and IRA should provide you with $50,000 per year of retirement income. See Chart 1 below.
This is a hypothetical example and is not representative of any specific situation. Your results will vary. The hypothetical rates of return used do not reflect the deduction of fees and charges inherent to investing.
Take a new look at your retirement plans
Sticking to a retirement savings plan that you broadly put together many years ago can have serious drawbacks. A plan made many decades before retirement is likely based on a hazy idea of what you’ll actually be doing once you retire, and it likely will not reflect today’s lifestyle budget and activities. So, it is very worthwhile to take some time to think through how you’ll be spending your days once you retire, and then compare that scenario with
Consider long-term care
Around 70% of retirees will need long-term care at some point in their lives. Given the high likelihood that you will need such care, and given that it can cost hundreds of thousands of dollars—your 50s are an ideal time to review some long-term insurance policies. You can typically get a much better price on this kind of insurance if you buy a policy in your 50s, rather than waiting until your 60s or even later. If you decide to skip long-term care insurance, you’ll need to set aside a considerable amount of extra money to finance these expenses. You owe it to yourself to at least price out policies and see if they’ll be worth the cost.
What if your savings are insufficient?
If you’ve put off both planning and contributing to your retirement savings until your 50s, you have a problem. First, you need to start contributing as much as possible to your retirement savings accounts immediately. Secondly, you may have to cut back on your retirement plans. Starting this late means you’ll have to keep your living expenses on the low side during retirement, so taking expensive vacations is probably out. Third, you may need to come up with some supplementary sources of income to pursue during retirement. It’s nearly impossible to live on Social Security by itself, so if your retirement savings are very small, you’ll need to find other sources of money to make up the shortage.
Contributing to your retirement savings early in your life is very important along with doing a complete retirement planning as early as possible in your work career or certainly no later than when you reach age 50.
Blog NO. 123 – How to Prepare for Retirement in Your 50s (2 Rev)