There are some big changes that occur for 50-years-olds. Of course, there is the gray hair (if you have any left) and larger mid-section. But you also have some different rules for saving for retirement. We’ll get to those in a second.
First, we need to talk about the big picture. Your 50s is the time to start thinking in more detail about retirement. What age will you retire? Do you plan to move to another state? Or downsize to a smaller home? Will you work part-time in retirement? You don’t need to have detailed answers to all of these questions yet. Just start thinking about them and how retirement might look for you.
Hopefully everyone kept track of their net worth during their 40s. Continue to update your assets and liabilities to see how they are changing. Use these updated account balances to run a few scenarios on a retirement calculator. You can find several of these online calculators just by using the search term “retirement calculator” in your web browser.
These calculators will help you determine how much you need to save each year to retire at a specific age and income. They aren’t perfect, but nothing is when so many assumptions are made. It’s still a very helpful exercise to determine if what you are thinking for retirement is a realistic idea or not.
Now that you know how much to save, there is good news for people turning 50. You get to save more in your retirement accounts than younger people! There is a $17,500 maximum that one person can save to their 401(k), 403(b), or TSP. But this maximum increases to $23,000 for anyone that is 50 years old or older. It’s a great way to turbo boost retirement savings during peak earning years. Take advantage of it!
A 50-something also needs to be watching their mix between bonds and stocks. The amount of stocks you held in your 40s may not be appropriate now that you are in your 50s. Consider reducing your stocks and increasing the amount of bonds.
The final thing 50-year-olds need to investigate is long term care (LTC) insurance. This is a tough one to discuss because LTC insurance is expensive. Annual premiums can be $3,000-$5,000 per person. But at the same time, assisted-living and home care is very expensive too.
The best course of action is to begin educating yourself by going to the Web site LongTermCare.gov. Here you will learn about long-term care, how much it costs, and what Medicare and Medicaid will and will not cover. The important thing to know is that Medicare does not pay for long-term care.
Those are some of the financial planning steps for 50-somethings. Remember to start thinking about retirement, play around with a retirement calculator, take advantage of the higher $23,000 savings limit in your 401(k) and learn about long-term care insurance.
Steve Doster is a Certified Financial Planner™ professional providing commission-free financial advice for do-it-yourself investors. You can reach Steve at Doster Financial Planning by phone 619-688-1192 or email steve@dosterfinancialplanning.com. You can also follow Steve on Facebook, Linked In, Twitter, or blog to get more personal finance advice and tips.
