Once you reach your 50s, retirement is around the corner, but you probably have many life priorities at this point. Family, work, and other responsibilities take up a lot of attention. Planning for retirement may be the last thing on your mind.
Nonetheless, it’s still important to pause and reflect on what will matter to you in this next life chapter, even if you expect that your retirement will be 10 or more years from now. Seeing where you are financially and whether you can take more steps toward your retirement goals will give you more time to get everything in place. Of course, one of those goals will be ensuring that you have enough income to last for all of your golden years.
In your 50s, there is also the risk of “sequence of returns,” or having investment losses in the years just before or in early retirement. No one can predict what the markets will do, and the unfortunate timing of investment losses is what makes this a real hazard. Even small losses can have a heavy hand on your retirement income and what sort of lifestyle that you might be able to sustain.
So, how should you plan for retirement in your 50s? In this article, we will go over some high-level steps to follow, explore your options, and set a plan so that you can have lasting financial security once you are retired.
Assessing Your Financial Situation
For the purpose of retirement planning, a big question is whether you will have enough money for the lifestyle that you hope to have in your golden years. To answer that question, start by looking at your retirement nest egg, spending, and income sources.
1. Calculate Your Nest Egg
How much do you have saved up? You can gauge this by calculating your net-worth, or the value of your financial assets minus your liabilities.
Assets include your home, investments, savings, and retirement accounts, while liabilities cover mortgage debt, credit card balances, and loans. Subtract your liabilities from your assets to determine your net worth.
That can give you a quick picture of how much you have in financial resources and how much you can allocate toward your retirement.
2. Review Your Retirement Savings
Take a close look at your retirement accounts, such as 401(k)s, IRAs, pensions, and any other retirement accounts. How much do you have in each account? How has each account performed? What is the tax status of each account you have?
While most retirement accounts are tax-deferred, meaning you don’t pay income taxes until you take account withdrawals, you may have opted for retirement accounts of a Roth account flavor. If that is the case, the money you contributed will be after-tax, but your withdrawals from your Roth account will generally be income tax-free.
All of these factors matter. A financial professional can assist you in doing a comprehensive review and answer all of your questions.
3. Estimate Your Retirement Expenses
You probably have a fairly defined lifestyle in mind for retirement. Of course, that lifestyle will have a certain price tag to keep up. In your 50s, it’s prudent to estimate how much you will be spending in order to sustain that lifestyle.
How can you predict what your retirement expenses will be? Your current spending will be a great clue-in. What does your present budget look like for monthly living expenses? How much do you spend on non-essentials, such as travel, vacations, and hobbies?
Some of your expenses may go away in retirement, such as mortgage payments or financial support for your children’s college education. Don’t forget about inflation, which can take a toll on your money’s purchasing power over time.
4. Evaluate Other Sources of Income
There is also the part about how you will cover your spending needs. This is where your retirement income sources come in. Besides retirement accounts, consider any other potential sources of income during retirement. You might include rental property income, payouts from annuities, passive income from investments, or part-time work.
How much income will your sources of money generate? How much is reliable income, or cash-flow that won’t change from month to month with investment values going up or down, or other factors affecting it?
Add up your sources of income together and see if there are any gaps that you might need to fill between your income and your expenses.
5. Determine Your Retirement Age
Based on your current financial progress, you may have a better idea of when you can retire. If you haven’t yet done so, determine the age at which you want to retire – ideally with help from an independent financial advisor. It goes without saying, but this benchmark can greatly impact your savings strategy and your timeline for achieving your retirement money goals.
If you had an earlier target retirement date in mind and need to adjust, that is okay. Planning now can give you more flexibility and choices in when you retire later on. Your financial professional can give you some food for thought on things to consider with this step.
Setting Retirement Goals
You have a better understanding of your financial situation and progress. Now it’s time to set specific retirement goals, which go beyond just money. Here are a few things to keep in mind.
6. Lifestyle Expectations
We talked about this a little bit earlier. You will want to think about the kind of lifestyle you want in retirement.
Do you plan to travel extensively, downsize your home, or pursue expensive hobbies? Will your lifestyle be more active or more laidback than it was during your working years?
Will you be pursuing long-held goals such as travel in your early retirement years, or further down the road? How could your lifestyle expectations change over time? Your retirement goals should align with your lifestyle expectations.
7. Healthcare Costs
Healthcare expenses tend to go up as people move along in their retirement years. In fact, healthcare spending tends to be one of the biggest expenses in retirement once seniors have hit their mid-70s and up.
It’s good to include projections for healthcare spending in your income planning. Your financial professional can assist you with this. Make sure to factor in the cost of health insurance, Medicare, out-of-pocket health spending, and potential long-term care needs when setting your retirement goals.
8. Debt Management
If you have outstanding debts, they can eat into your income if they aren’t paid off before retirement. You might want to come up with a plan for handling those before then.
By reducing or eliminating your debt load, it will free up more of your retirement income for your desired lifestyle.
9. Emergency Fund
Having an emergency fund is crucial at any age, but especially in retirement. If something unexpected happens, liquid funds can help you cover any expenses arising from it.
It’s good to set aside a portion of your savings for unexpected expenses, such as medical emergencies or home repairs. You might speak with your financial professional for an opinion on this. But having 6-12 months’ worth of expenses in an emergency fund can be a good goal to aim for and maintain.
10. Legacy Planning
Do you want to leave something behind to your loved ones? What sort of legacy do you wish to impart? This decision may influence your spending and investment decisions.
For example, if you have an IRA that you don’t “need” for income and want to leave to heirs, you might look at options to pass on that wealth to your loved ones as efficiently as possible.
If you do have assets sitting around that you won’t need like this, you might want to talk to your financial professional about it. They may affect your tax situation in some way, and there may be options to make gifts and mitigate your tax burden while you are still alive. They can also suggest ways for you to maximize the assets that you leave behind for your loved ones as well.
Saving and Investing
At this point, taking stock of your financial situation and setting goals can bring great clarity for your path forward. Of course, your 50s are different times from earlier years of your life. When you reach your 50s, money moves to preserve what you have and protect it from extensive loss risk become more compelling.
Why? One big reason is because of sequence of returns risk as we mentioned earlier. Ill-timed losses could have a big impact on your lifestyle or your retirement in general. Wealth protection strategies can help you guard the fruits of your life’s work to date and set you up for a secure retirement.
If you are behind on your retirement savings, it’s a good point to start ramping up as well. Here are some key steps to consider.
11. Maximize Retirement Contributions
Do you need to catch up on saving for retirement in any way? Perhaps take advantage of catch-up contributions available for those aged 50 and beyond.
These extra contributions can make a big difference in how much you have in retirement savings. You might want to max out your contributions to your workplace retirement plan and your IRA or other personal retirement accounts.
12. Diversify Your Portfolio
Finance doesn’t offer any free lunches, but diversification is actually one! A well-diversified portfolio can help moderate risk and still provide growth potential.
Consider a mix of stocks, bonds, mutual funds, annuities & similar interest-earning vehicles, and other assets that match up with your risk tolerance and financial timeline. Your plan should have a good balance between growth potential, protection, and market loss risk. An experienced financial professional can help you explore different options for your situation.
13. Consider Downsizing
If your current home is too large or expensive for your retirement lifestyle, consider downsizing to a smaller house. This can be advantageous in a number of ways, especially if you would like to age in place in your home.
First, it can give you less real estate to manage and worry about. Housing repairs and maintenance costs tend to be among the largest retirement expenses, according to data from the Federal Reserve. That can give more relief for your monthly retirement budget.
Secondly, the proceeds from your home sale can help boost your retirement savings. That can leave you with a larger nest egg to tap for income in later years.
Income Streams in Retirement
Retirement is drawing closer. Once you call it quits, how will you generate income in retirement? How much income will you be able to count on? What money sources will be able to pay you reliable income streams that won’t change from month to month?
Those are just a few questions to consider. Here are strategies to ensure your assets work for you during your golden years.
14. Social Security
Social Security benefits are a major staple of retirement income for most retirees. It’s crucial to know your options with Social Security, how they work, and when it might be optimal to claim your benefits.
Delaying benefits will lead to higher monthly payments, but you may be concerned about waiting too long if your medical history or your family history suggests that your golden years may be shortened.
Your financial professional can help you walk through different scenarios and see what claiming strategy for Social Security makes sense for you.
15. Retirement Account Withdrawals
Your account withdrawals matter in a lot of ways.
Are you withdrawing enough money for covering your lifestyle? Too much where you might run out of money early? Too little where you might be scrimping on your standard of living? What about the timing of your withdrawals: Are they in the middle or at the end of a market downturn?
Stick with a sustainable withdrawal rate. Some strategies can help increase your withdrawal target rate, guard against sequence of returns risk, and pay ongoing payouts that are consistent each month.
Don’t forget about tax consequences for your accounts. Many financial professionals recommend taking out withdrawals from taxable accounts first, then tax-deferred accounts, and finally tax-free accounts. The aim is for tax-deferred and tax-free account holdings to grow more in value over time.
It’s also good to keep in mind the age at which you will be withdrawing money. The IRS has specific rules and penalties for early withdrawals from tax-advantaged accounts like 401(k)s and IRAs. If you are younger than 59.5 when you make withdrawals from a tax-deferred account, you will generally have to pay a 10% penalty on top of income tax due on your withdrawn amount.
16. Consistent, Reliable Income from Annuities
The 4% withdrawal rule may not hold water now, between changing equity markets and fast-changing interest rates. If you wish to keep your withdrawals sustainable and also have unchanging income to pay for your lifestyle, give annuities a look.
Annuities are the only thing besides Social Security that can pay you a guaranteed lifetime income stream or for as long as you need it. You will receive your annuity payments even if markets see a wild downturn. This ‘permanent,’ unchanging income can make a big difference when it’s coordinated with other income sources, giving you reliable income for your monthly living expenses.
17. Continuing Work
When will you stop working? Many people continue some sort of work in retirement so that they maintain a social connection and feel fulfilled.
Sometimes health changes can affect how long that retirees can work for, but this can be a great way to stay engaged and active for the meanwhile. What’s more, it can also provide additional income for you in retirement.
Sometimes working in retirement can affect your Social Security benefits and other matters, so you can talk to your financial professional for more details on that.
Legal and Estate Planning
Don’t forget about the legal and estate planning aspects of retirement. There is also the consideration of what you would want done with your assets if you are no longer here. Here are some things to think about.
18. Create or Update Your Will
You will want to be sure that your will reflects your wishes for asset distribution (and guardianship if you have dependents). If any life changes arise, make sure to review your legal documents and ensure that they are updated.
Should the thought of probate worry you, you might talk to your legal advisor about options for trust planning and other strategies that can help you bypass probate.
19. Establish Power of Attorney
What would happen if your decision-making ability was lessened? What could arise if you experienced a medical emergency? Power of attorney is crucial in post-retirement matters. Designate someone you trust as the party to handle your financial and healthcare decisions if you become incapacitated.
20. Review Beneficiary Designations
Life happens, and changes come with it! You may want to keep a close eye on your accounts and who would inherit their assets if something were to happen to you.
Regularly review and update beneficiary designations on your retirement accounts and life insurance policies to ensure they align with your current wishes. If they need updating, you can designate those changes accordingly.
21. Estate Tax Planning
If you have a big estate, talk with an estate planning attorney about strategies to minimize potential estate taxes and ensure a smooth transfer of assets to your heirs. Some states also have taxes on estates that are much smaller than the estate size taxed at the federal level. You can talk to your financial professional, legal advisor, and others for personalized guidance with your situation.
Regularly Review Your Retirement Plan
Planning for retirement in your 50s isn’t a one-time thing, but a moving target. As we have covered, life changes might affect your plan, or you might need to take further steps toward certain goals or milestones.
The bottom line is that it’s an ongoing process. You can regularly review and adjust your plan in your 50s as needed, especially as you near your retirement age.
The Bottom Line on Retirement Planning in Your 50s
Your 50s are a crucial time for planning for a comfortable retirement. By getting a grasp of your financial situation, setting clear retirement goals, and pursuing a path forward, you can secure your financial future.
While it’s great if you start looking into retirement planning by yourself in your 50s, it’s also beneficial to look at guidance from a financial professional. Someone who is experienced will have helped many clients in different market and economic conditions. They can bring that knowledge and expertise to your situation.
Remember, it’s never too late to plan for retirement. By looking at how you can plan for retirement in your 50s now, your proactive steps can greatly benefit you in the years to come.
Are you looking for a financial professional to help you? Many experienced and independent financial advisors and agents are available at SafeMoney.com, and they are versed in retirement strategies that can help you in your unique situation.
Get started with our “Find a Financial Professional” section, where you can connect with someone directly and talk about your situation, concerns, and goals. If you need a personal referral, call us at 877.476.9723.