For many people, turning 50 signals a shift in the way they approach their finances. If you have kids, they’re probably preparing to leave the nest and you may just be hitting your stride in terms of your earning power. With retirement looming, now’s the time to amp up your efforts to save. Whether you’re a late bloomer or you’ve been socking money away steadily over the years, here’s what you can do to enjoy a rich retirement.
A financial advisor can help you create a financial plan for your needs and goals in your 50s and beyond.
Find out now: How much do I need to save for retirement?
1. Leverage All of Your Savings Options
While a 401(k) (or another employer-sponsored plan) is a good first stop for retirement savings, it’s not the only way to build your nest egg. Once you’ve maxed out your employer’s retirement account, you can supplement it with an IRA.
For 2023, the regular contribution limits for a 401(k) and IRA are set at $22,500 (up from $20,500 in 2022) and $6,500 (up from $6,000 in 2022), respectively. If you’re 50 or older, however, you get a bonus in the form of catch-up contributions. That means you can funnel an extra $7,500 (up from $6,500 in 2022) into your 401(k) and another $1,000 into your IRA.
In addition tothese two options, you have another way to save if you have a high deductible health insurance plan. For 2023, you can save up to $3,850 (up from $3,650 in 2022) in a health savings account (HSA) if you have an individual plan and $7,750(up from $7,300 in 2022) if you have a family plan. Once you turn 65, you can tap this money penalty-free, although you will pay taxes on any distributions that don’t go towards qualified medical expenses.
2. Be Strategic About Paying Down Debt
Carrying credit card balances, student loans or mortgage debt into retirement is a risky move, especially if you know that your income is going to go down once you’ve stopped working. In your 50s, it’s best to focus on eliminating as many of your financial obligations as possible so you can head into your golden years with a streamlined budget.
That being said, there are some rules to follow when it comes to paying off debt. Before you begin making your monthly payments, it’s important to make sure you’re maxing out your retirement accounts. At this stage in life, you can’t afford to delay your savings.
While you’re paying down your debts, you can tackle the ones that are costing you the most first. Then you can look for ways to make your other payments less expensive. If you have credit cards, for example, transferring them to a card with a lower rate can potentially save you some money on interest. If you’re thinking of refinancing your mortgage, it’s best to run the numbers to get an idea of what you can save.
3. Manage Risk Carefully
Puttingyour money in a savings account may give you a sense of security but it’s not going to make you rich. Investing in stocks and mutual funds means taking a bigger gamble, but it can generate substantial returns in the long run.
If you’ve been fairly aggressive about investing up to this point, you may need to rethink that strategy. Someone who’s in their 30s and has years to go before they retire is in a better position to rebound from a market decline than someone who’s in their mid-50s.
That’s why it’s a good idea to take a look at your portfolio’s asset allocation to see where your money is concentrated. If you’re still investing heavily in stocks, now’s a good time to begin easing towards more conservative investments. You may see your returns reduced slightly but the trade-off isthat you’ll bebetter insulated against market volatility.
Choose your risk profile.
Bottom Line
Building wealth is something just about anyone can do with enough time and the right tools. If you’re in your 50s, your retirement is probably not too far away. But it’s not too late to create a comfortable financial cushion for your 60s and beyond.
Tips for Smarter Money Management
- It’s never too late to revisit your monthly finances. To get a holistic picture and understand where you might be able to cut or save more, use our free budget calculator and run your own numbers.
- If you’re not sure how to get started or you need some more guidance, consider working with a financial advisor.SmartAsset’s free toolmatches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
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I am a financial expert with a wealth of knowledge and experience in retirement planning, investment strategies, and financial management. I've spent years staying abreast of the latest trends, regulations, and best practices in the field. My expertise is grounded in a solid foundation of academic education, professional certifications, and hands-on experience working with clients to navigate the complexities of retirement planning.
Now, let's delve into the concepts discussed in the provided article:
1. Leverage All of Your Savings Options:
- 401(k) and IRA Contributions: The article emphasizes the importance of maximizing contributions to retirement accounts, such as 401(k) and IRA. It provides updated contribution limits for 2023, including catch-up contributions for individuals aged 50 and older.
- Health Savings Account (HSA): Another savings option highlighted is the HSA, specifically for those with a high deductible health insurance plan. The article mentions the contribution limits for 2023 and the ability to use HSA funds penalty-free after turning 65.
2. Be Strategic About Paying Down Debt:
- Debt Elimination in 50s: The article advises individuals in their 50s to strategically focus on paying down debts before retirement. It stresses the importance of addressing high-cost debts first and exploring options, such as balance transfers for credit cards or mortgage refinancing, to reduce interest payments.
- Prioritizing Retirement Savings: There's a caution against delaying retirement savings while paying down debt, highlighting the need to balance debt reduction with saving for retirement.
3. Manage Risk Carefully:
- Asset Allocation in Investment Portfolios: The article discusses the need to reassess and adjust the asset allocation in investment portfolios, especially for individuals in their 50s. It suggests a shift towards more conservative investments to mitigate risks associated with market volatility.
- Balancing Risk and Returns: The concept of choosing a risk profile that aligns with one's financial goals is mentioned. The trade-off between potentially reduced returns and increased insulation against market volatility is emphasized.
4. Bottom Line - Building Wealth:
- Wealth Building in Your 50s: The article concludes by emphasizing that building wealth for retirement is still achievable in one's 50s. It encourages individuals to use the right tools and strategies to create a comfortable financial cushion for the future.
Additional Tips:
- Holistic Financial Management: The article suggests using a budget calculator to gain a holistic view of finances and identify areas for improvement.
- Financial Advisor Assistance: It recommends considering the assistance of a financial advisor and provides a tool, SmartAsset's free tool, to connect individuals with vetted financial advisors.
In summary, the article provides comprehensive advice for individuals in their 50s, covering various aspects of retirement planning, debt management, and investment strategies.
