Your complete guide to retirement planning in your 50s


Common advice says it is important to start retirement planning as soon as possible. While you may have opened a retirement savings account between the ages of 20 and 30, that doesn’t mean your plan should be on autopilot mode until the day you leave your job for good. There are also important steps to take in your 50s to make sure you are well on your way to your golden years.

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Prioritize your retirement

As you approach retirement age, it is important to prioritize a comfortable retirement over other financial goals. This often means spending less in other areas.

For example, one of the biggest expenses for people in their 50s is their children’s college education, according to Julia Vanzler, chief executive, senior wealth advisor at Wealth Management & Trust at SVB Private. “It’s a wonderful gift to be able to help pay for college, but it’s important to remember that students can borrow money for school, there are no retirement loans,” she said. She saves for retirement first, then determines if there are excess savings that can go towards other things, such as college expenses.

Here is some more information about saving for retirement and preparing for the resulting costs:

Play catch up

People aged 50 and over have the opportunity to save more on their employer’s savings plan and possibly make up for lost time, said John Campbell, Wealth Planning Manager for US Bank in the Eastern Region. . For example, the contribution limit for a 401 (k) in 2022 is $ 20,500, but workers aged 50 and over can add an additional $ 6,500 for a total of $ 27,000 each year. If you have an IRA, you can pay a $ 1,000 recovery fee in addition to your $ 6,000 annual limit.

Additionally, Campbell said it’s important to leverage your company’s game. “This has two advantages: you are saving more for retirement and you are reducing your taxable income.” An employer match is free money that can help bridge the gap between what you have saved and what you need to retire, so make sure you contribute at least enough to get the whole match.

Here is some more information on investing:

Put your savings to work

Vanzler said the peak earnings for many workers are around the age of 50. This can be a great opportunity to increase savings. “Be aware of what you are spending on fixed versus discretionary expenses and set a goal of saving more each month,” she said.

Also, be focused on how those savings are allocated. If you want to split your savings into different goals, Campbell suggests this: allocate at least 50% to retirement investments, 10% to 25% to pay off floating rate debt, and 10% to 25% to save on repairs. domestic.

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Maximize your healthcare savings account (HSA)

Your 401 (k) or IRA isn’t the only savings vehicle available for retirement. If you have a high-deductible health plan, you are eligible to invest money in an HSA. This account offers triple tax savings that can help you retire. Your contributions can be paid pre-tax, you don’t have to pay income tax, and you can withdraw tax-free money now or in retirement to pay for qualified medical bills.

Also, after age 65, you can use the money in your account for non-medical expenses without any penalty. However, you must pay income tax on any unskilled withdrawals. Campbell noted that an HSA is also portable, as the account accompanies you if you change jobs.

Anticipating the need for long-term care

At some point in your retirement, you may no longer be able to take care of yourself completely. It’s a situation that doesn’t like to think about anyone, but it should be planned. “The costs of long-term care have skyrocketed in recent years, leaving much of the elderly population unprepared to finance care or aging at home,” said Andy Freedman, vice president of marketing and experience at Assured Allies. In fact, the average cost of a semi-private nursing home room is now over $ 93,000, and home health aides are over $ 50,000.

Freedman said investing in long-term care (LTC) insurance can save you thousands of dollars in the future. “When planning your retirement, make sure you expect the unexpected and take these costs into account,” she said. “It is also important to fully understand the nuances of LTC insurance and whether you are eligible.”

Have an income tax plan

Campbell noted that many people focus on accumulation (savings) planning for retirement, but many neglect distribution planning. As in, the taxes you will have to pay when you withdraw your money.

“Think of income diversified from taxes, such as after-tax accounts,” he said. For example, a Roth IRA allows you to contribute in after-tax dollars, which then grow tax-free and can also be withdrawn tax-free. This is a good place to hold high-growth investments that would otherwise translate into a large retirement tax. Roth IRAs have income limits, but there may be ways around them, such as a “backdoor Roth IRA”. It is always a good idea to talk to a financial advisor about the best tax strategy for your retirement investments.

More information on retirement taxes:

Look into life insurance

Finally, Campbell recommends taking out a permanent life insurance policy. Unlike term life insurance, a permanent policy (such as whole life, universal life, or variable life) protects you for life and also has a cash value component. This means that your loved ones are not only financially protected if you die, but you have interest bearing funds that you can leverage while you are still alive.

Life insurance rates generally go up with the age of the applicant. So the sooner you can secure a policy, the less you will pay in premiums.

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This article originally appeared on GOBankingRates.com: Your Complete Guide to Retirement Planning in Your 50s

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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