You’re about to retire, as long as you make the right money moves.
Most important points
- At the age of 50, it is advisable to save at least five times your annual salary.
- During this decade, try to maximize pension contributions and pay off all debts.
- Do estate planning and retirement planning to protect yourself and your family.
Your 50s could be when you start to feel much more comfortable and financially settled. While the first few decades of a career are often hectic, 50 is normally when people have reached their peak earnings. You have also had enough time to build up investments, which could earn you a lot compound interest by this time.
This is the final step home, and depending on your current nest egg, your retirement may be only five to 10 years away. To avoid last-minute pitfalls, here are five personal finance targets that are well suited to 50-year-olds.
1. Have at least five times your annual salary saved
A popular rule of thumb is to have at least five times your annual salary saved by the time you are 50 years old. This means that if you earn $80,000 a year, you should have at least $400,000 for your retirement accounts and bank accounts.
That is not a small amount, and many 50-year-olds are not there yet. You shouldn’t look down on yourself if you don’t quite reach this goal. However, this is a good gauge to determine if you’re on track to retire at age 65. If you haven’t reached this point, it’s a sign that you probably need to shift more of your money into retirement savings.
2. Maximize your retirement contributions
One of the benefits of reaching 50 is that you can contribute more to tax-advantaged retirement accounts. For 2023, the 401(k) contribution limit is $22,500 for those under 50, but that’s about it $30,000 for those age 50 and older. You can also contribute up to $7,500 until IRAs in 2023 if you’re 50 or older, which is $1,000 more than the under-50 limit.
Try to maximize or get as close to these limits as possible, especially if you are behind on retirement savings. Even if you’re on the right track, you may still want to contribute as much as possible to your retirement plans. It never hurts to have more money for retirement, and this may even allow you to retire earlier than planned.
3. Take care of your wealth planning
In this phase of life, everyone needs an estate plan, which states what will happen to your assets in the event of disability or death. It’s not the most fun subject to think about, but taking care of your estate planning will give you peace of mind. By doing this yourself, you can rest assured that your family won’t have to handle your finances on their own if something happens to you.
You may want to consult an estate planning attorney to help you with this, especially if you have significant assets. In any case, these are the estate planning documents everyone should have:
- A last will and testament control over the settlement of your assets
- Financial power of attorney authorize someone else to represent you in certain matters if you become incapacitated
- Power of Attorney authorize another person to make healthcare decisions for you if you become incapacitated
- A living will provide guidance on health care decisions in situations where you are unable to provide informed consent
4. Pay off your mortgage – and any other debts you have
Since you are approaching retirement, now is a good time to focus on getting rid of debt. This way you have fewer monthly costs if you stop working and end up with less income.
If you have multiple debts, start with the one with the highest interest and work your way down. For example, if you have credit card debt, a car loan and a mortgage, tackle them in that order. This way you save the most on interest costs.
Many people are still paying off their mortgage at this age. It’s fine if you haven’t paid off your mortgage but try to complete this when you are fifty.
5. Go into detail about your retirement plans
You may have already figured out some preliminary details in your retirement planning, such as a target retirement age and the amount to save. Once you get into your fifties, you can smooth this one out more. Here are some questions to ask yourself:
- Where will you retire? Some retirees stay where they are, but there are also plenty who change states or even retire abroad.
- When are you going to take social security? If you have enough in your retirement accounts waiting to take Social Security you get a greater benefit.
- How are you going to withdraw money? There are several strategies for retirement. You should choose one that offers enough for you to live comfortably and also ensures that you don’t run out of money.
- What are you going to do for care? If you currently have good health insurance through work, think about how you will replace it when you retire. Medicaid is usually the most affordable option, but there are others health insurance for retirees.
For most people, the 1950s are not the time to make major financial changes. Instead, in this decade, make the final push toward retirement by saving as much as you can and paying off any debt. It’s also the time to handle all of your important financial planning, including retirement planning and estate planning.
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