By the time they reach their 50s, many Americans should be placing a high priority on planning for retirement. This is the stage of life when the finish line may finally be in sight for people who are planning to retire sometime in their 60s or early 70s.
This makes the 50s perhaps the most important decade when it comes to planning for retirement. For many people, it represents the stretch run just before the final couple of miles in what has been a lifelong marathon to save enough money for a financially secure retirement.
Clarify Your Savings Target
As you enter your 50s, it’s important to clarify your retirement savings target. This isn’t the time to be guessing how much money you’ll need to have saved to live the retirement lifestyle you’ve dreamed of.
The amount of money needed for retirement will differ for every individual and couple. Factors to consider include the cost of living in your area of the country, whether you will pay off your home before you retire or carry a mortgage, your medical costs in retirement and, of course, your desired retirement lifestyle.
So, should you strive to pay off your mortgage while you’re in your 50s to be mortgage-free in retirement? If you do, this could remove a major expense from your retirement budget and help your retirement savings go farther. By putting extra money toward your mortgage principal each month in your 50s, you could shave years off your mortgage and possibly own your home free and clear by the time you retire.
And if you’re carrying high credit card balances, your 50s are the time to get serious about eliminating them. It’s usually not wise to enter retirement with tens of thousands of dollars of high-interest consumer debt weighing you down.
Reexamine Your Risk Tolerance
With retirement possibly looming on the horizon, your 50s are also a good time to take a fresh look at your risk tolerance and asset allocation. This refers to how the investment assets in your retirement account are spread out among different asset classes like stocks, bonds and cash equivalents.
As your retirement date draws closer, it may be a good idea to shift your asset allocation to a more conservative mix. For example, you might consider selling some riskier assets such as stocks and using the proceeds to purchase safer and less volatile assets like bonds and cash equivalents since you now have a shorter time horizon for recouping potential short-term investment losses.
Take Advantage of Catch-up Contributions
To help individuals and couples in their 50s ramp up their retirement savings, Congress created catch-up contributions allowing higher annual contributions to retirement plans. If you’re 50 years of age or older, you can contribute an additional $1,000 to your IRA and an additional $6,500 to your 401(k) in 2020. This brings your total allowable IRA contribution up to $7,000 and your total allowable 401(k) contribution up to $26,000 in 2020 if you’re in your 50s.
Your 50s may represent the culmination of a lifetime spent planning for retirement. So, make it your goal to finish strong by setting a specific retirement savings target, adjusting your asset allocation as necessary and taking advantage of catch-up contributions to your retirement plan.
Disclaimer: The Content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice