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Financial “To Do List” Series: Managing Money in your 50s

August 08, 2018

For our fourth installment in the “Financial To Do List” series, we explore some financial checklist items for your 50s- including ramping up retirement plan savings and more.

When you enter your 50s, retirement is no longer such a distant concept, which is why financial discipline is extremely important. Feeling a bit overwhelmed? Here are some tips to get you on track for a fruitful retirement.

“Catching up” on retirement savings

Individual retirement accounts and employer-sponsored retirement accounts have a provision which allows investors to put even more money into their retirement accounts when they reach age 50.

  • For Traditional and Roth IRAs, a person who is 50 years old and older can add an additional $1,000 to the $6,000 that they are already allowed to contribute.
  • For those in 401k, 403(b) and 457(b) plans the maximum annual contribution is $19,500. For those 50 year old and older they can contribute an additional $6,500 to these plans.
  • SIMPLE 401(k) plans have a maximum contribution of $13,500 with a $3,000 catch-up contribution limit.

These catch up contributions can make a significant difference as you head into retirement. You always need to be planning for the future and this is a great way to give your future retirement savings a boost.

In addition to your retirement savings pay attention to your non-retirement investments. How are these assets balanced? What are the tax consequences when you start to draw on assets across your retirement and non-retirement accounts? Working with an advisor can help in assessing strategies to draw on these different retirement and non-retirement accounts and help in minimizing any taxable impact.

Have fewer expenses now? Think again!

The 50s bring another significant shift. At this point there is a good chance that big life events have already taken place – marriage, buying a home, raising children to the point where they are financially independent – all phases of life that are also large expenses. But this does not necessarily mean the large expenses stop. An expense item that is often overlooked is categorized by the “sandwich generation” - people that fall within the 40 – 60 age bracket and are sandwiched between aging parents that need care/assistance and their own children that they are still supporting. Statistics show that one in every eight Americans that fall into this age bracket may still be raising a child and at the same time be caring for an aging parent – certainly no easy task that may include unexpected expenses.

Rule of thumb

The general rule of thumb is to have saved approximately five times your annual salary by the time you are in your 50s.

How do you compare?

The Economic Policy Institute reports that for households between 50 and 55, the average savings balance is $124,831. For those between 56 and 61, that number comes in a bit higher, at $163,577.

What these numbers demonstrate is that the average person in his or her 50s has a fair amount of catching up to do on their retirement savings and retirement is further away than one may have thought.

Take a look at what you already have

Evaluating what you already have saved is a key component at this stage. What accounts do you have in place? Do you have many accounts scattered among many different financial institutions? Now is the time to think about consolidating.

Along with consolidation it is important to address your overall portfolio asset allocation.

Given your objectives and timelines it is critical to make sure you have the right asset allocation. Over time, without regular check-ins and rebalancing, an account allocation may not be what you think it is. This is an important time to build your own financial plan. A financial plan will help you see the big picture and also assist in setting long and short term goals.

What about healthcare?

Part of your spending habits in retirement that you may be overlooking are health care costs - with people living longer than previous generations it is important to take note of this critical expense and how it would impact your retirement savings. Health care costs can dramatically deplete savings. You might consider purchasing long term care insurance which could help pay for assisted living costs or at-home health care.

The costs for these products will only go up as you age because you become a greater risk. While you may not have any health issues now you cannot lose sight of the future – look into long-term care insurance as an option to help with these medical care costs.

Stick to your plan!

As in all phases of your financial life it is important to create a plan, stick to the plan and adjust as necessary. In assessing your financial plan pay attention to the income that your assets generate. A guide on this is that your assets should generate enough income to cover today’s living expenses. Keep in mind, at a 4% withdrawal rate, you would need a nest egg of about $1.5 million to support real, or inflation-adjusted, withdrawals of $60,000 a year for 30 years. A financial advisor can help you set a reasonable target for the size nest egg you should build and in turn look at sustainable withdrawal rates.

While you may feel overwhelmed that you need to play catch up, just remember that anything you add now will incrementally help in the future. Continue the disciplined pattern and take things step by step. This journey that you started many years ago will pay dividends in the future and take care of you into retirement and beyond - you have a lot to look forward to!

Key takeaways

  • Play catch up: start contributing more to retirement accounts ($6,000 additional for 401(k) plans….$1,000 for IRAs)
  • Continue to build your non-retirement assets
  • Assess your current portfolio allocation: do you need to rebalance?
  • Look to consolidate numerous retirement accounts held at different institutions
  • Figure what expenses you will need to allocate to in retirement: health care is an important component (do you have long-term care insurance?)

Contact me or any member of the KLR Wealth Management Team for more information, and don’t forget to check out the rest of our Financial To Do List Series.

Financial “To Do List” Series: Managing Money in your 20s

Financial “To Do List” Series: Managing Money in your 30s

Financial “To Do List” Series: Managing Money in your 40s

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