I'm in My 50s

Hope Is Not a Plan (nor is buying lotter tickets): Financial Planning in Your 50s

Even with all the best intentions, many retirement plans go awry. Some of the most common causes are:

  • High debt levels
  • Illness
  • Disability
  • Layoffs
  • Insufficient insurance protection
  • Boomerang kids (adult children who return to live at home)
  • Extravagance at the start of the "empty nest" phase

But the cause of most problems in retirement can be reduced to two words: Poor planning. And some of the most crucial planning you need to do happens in the homestretch, the final decade or so before retirement. 

Next, identify your sources of income for retirement and do some realistic calculations about how much each will contribute. How much will your current savings, investments, and Social Security benefits be worth when you retire, and how long will they last? What effect will inflation have on your nest egg? If you have difficulty with these calculations, be sure to consult with a qualified independent advisor. 

  • Health and Lifestyle - In your 50s, you will typically be finished with, or will be finishing off, life's major expenses: raising kids, college, weddings, and mortgage. So your expenses will hopefully be declining. On the other side of the balance sheet, most people in their 50s are at the height of their earning power and good for another 10 to 15 years in the workforce. If you've been smart (or lucky) enough to have both factors working in your favor, you're in a good position to accelerate your retirement savings. More on that shortly. If not—if you still have kids to educate or parents to care for—then the challenge will be that much tougher. All the more reason to keep yourself in the best health possible. Your risk for cancer and other serious conditions increases with age. Annual physicals—for both men and women—are not optional once you're in your fifth decade. Both sexes should begin regular colorectal screenings. Women should have mammograms regularly and should inquire about bone-density screenings. Men need prostate exams.
  • Planning Your Retirement - These days, the median retirement age is 62. So it is by no means too early to begin thinking about the details of your golden years. Start thinking in more detail about the three questions:
    1. What will your retirement be like? What will you do with your newfound free time? Are your hobbies and interests expensive ones? Or will you work? Many people do, immediately or eventually. In addition to being a source of income, work has social and psychological benefits, too. You may be thinking about launching a business or going back to school; these are popular and worthwhile ambitions but they are also often expensive. Where will you live? Will you move to another location, such as a warmer climate? Will you stay local but move into a smaller house? Spouses should be sure to discuss these matters in as much detail as possible.
    2. When will you retire? Early retirement seems like a wonderful thing, but it packs a financial double-whammy: You'll no longer be earning money, and your Social Security and/or pension benefits will be lower. You also may lose your corporate benefits, including health coverage, which is discussed below.
    3. How much will it cost? Based on the lifestyle you envision, you'll need to assess what your retirement expenses will be. Keep in mind that they generally change over time. Your mortgage and work-related expenses will likely decrease; your health costs will likely increase. In general, retirement expenses are usually high at first (even with Medicare), lower in the middle, then higher later if health declines.

    Next, identify your sources of income for retirement and do some realistic calculations about how much each will contribute. How much will your current savings, investments, and Social Security benefits be worth when you retire, and how long will they last? What effect will inflation have on your nest egg? If you have difficulty with these calculations, be sure to consult with a qualified independent advisor.

  • Saving for Your Retirement - Like most people these days, you've probably worked for a number of companies over the years. Maybe your retirement savings are spread over a number of IRAs, 401(k)s, 403(b)s, etc. This might be a good time to consolidate the dormant accounts into a single, well-balanced, well-managed IRA. Before you do this, we recommend speaking with a qualified independent advisor, since taxes and penalties could apply if these rollovers aren't done properly. Depending on your retirement goals and how much you have saved already, you may need to be saving 20% or more of your income. If you're in 'catch-up' mode with your retirement savings, the IRS has instituted rules to help:

    • 401(k) Plans - In 2018, you can contribute up to $24,500 to a 401(k) plan, which includes a $6,000 catch-up limit.
    • IRA (including traditional IRAs and Roth IRAs) - In 2018, you can contribute up to $6,500, which includes a catch-up limit of $1,000, to a traditional or Roth IRA.
       
  • Estate Planning - By now, you should have in place the following documents: a will, a power of attorney, and a living will. If not, make a priority of assembling them.
     
  • Insurance - Make sure you have the right kinds and enough of it to protect your loved ones.
     
  • Medical Insurance - When you turn 65, you're covered by Medicare. If you're planning on retiring before then, you'll need to be sure that you have adequate medical coverage. Options include:
    • Your company's retiree medical coverage
    • Your spouse's workplace plan
    • COBRA and/or HIPAA continuation coverage
    • A private plan (although these are expensive and difficult to purchase)
  • Long-Term Care Insurance - Some people secure coverage while they're young and the premiums are inexpensive. Others wait until retirement. In your 50s, you should at least be researching your options and meeting with a qualified independent advisor about your circumstances.
     
  • Life Insurance - If your kids are grown and financially independent, the mortgage is paid off, and your spouse would survive without your income, you may no longer need life insurance. On the other hand, if any of these are a concern, you may need to keep a policy in place or even purchase additional insurance. Another exception is if you've got an estate of more than $11.2 million. Life insurance could help to pay the 40% estate taxes that would be due on any amount over the $11.2 million exemption. 
     
  • Disability Insurance - While you're still working, your earning power is among your greatest assets and you'll want to protect it with disability insurance. Take advantage of your employer's plan; if your employer doesn't offer one, find an individual policy.
     
  • Homeowners and Liability Insurance - Throughout our lives, our homes are typically our largest asset. In retirement, a home can remain a cornerstone of your financial stability. So protect it now, with sufficient homeowner's insurance. In addition, make sure you have adequate liability insurance. Raise the liability limits on your homeowners and auto insurance policies to the maximum, and consider adding a personal liability policy (also called an umbrella policy). In general, maintain liability coverage equal to one to two times your net worth.
     

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