middle aged woman having coffee with her daughter

Live below your means. Spend less than you earn. These are words of advice given to people at just about every age.

But when you’re in your 50s, it’s an important decade to assess your financial health as you are not only in your peak earning years, you’re also about 10-20 years away from retirement, making it all the more important. Doing a diagnostic checkup will reveal the actions you need to take to continue growing your savings and establishing a sense of security as you approach retirement.

The Zing blog has assembled financial experts from across the country to weigh in on the key points you should focus on in this decade of life to ensure a comfortable retirement.

Be Realistic About the Amount of Money You’ll Need in Retirement 

Steve Goldstein, founder of Thomas Gold Solutions, says that determining a monthly budget or income need is without a doubt, the most important number in a client’s financial plan. It helps an advisor understand and analyze how quickly a client’s retirement funds will become exhausted when withdrawn during retirement years and warns that ballparking a number is not good enough. “Guessing or taking a shot at this number can prove to be disastrous for some clients. If this budget or income-need number is off by $200—$300 per month today, it could mean thousands of dollars of difference in a life-long client analysis and an abrupt change in lifestyle if your funds were to run out in retirement.”

Carla Dearing is the founder and CEO of SUM180, an online advisory service designed to make financial planning easy and affordable for women. She says that identifying gaps in your retirement game plan and planning for the unexpected can alleviate some pressure and stress.

“Take advantage of the retirement calculator tools available online to estimate what your needs will be in retirement and assess how well your current assets will support you when the time comes. A simple rule of thumb is that you will need to cover about 80% of your pre-retirement living expenses. Also review your home, health, life and auto insurance policies to make sure you have enough coverage to protect your savings and your family in case of a medical or legal emergency.”

Make Decisions That Align with Your Retirement Timeline

If you are 58 and plan on retiring at age 60, your course of action will be different than if you plan on retiring at 65 or older, says Bob Johnson, president and CEO of The American College of Financial Services.

“If your time horizon until retirement is less than five years, you are in the red zone of retirement — that is, you are closing in on retirement and can’t afford to have a bad year or two that will negatively impact your retirement. You need to protect your portfolio against sequence of returns risk. If you experience a bad year or two in the market immediately preceding retirement, it can have a huge impact on the quality of your retirement. Since 1926 there have been very few five-year holding periods that have been negative for the market. The last negative five-year holding period was 2007 through 2011 (a time period that included the financial crisis) and the annual holding period return was only –0.25% per year. But, if you chose to retire at the end of 2008, your equity portfolio would have declined by 37% in that year if you were invested in the S&P 500. You can’t afford to bear that risk.”

Johnson says it’s important to not get overly conservative with reallocating assets in this decade of life, especially as lifespans increase. If you get conservative too many years prior to retirement, you could be missing out on moneymaking opportunities and ultimately accumulate less wealth. “People are living longer today than they did 20 years ago. Surveys have shown that people fear running out of money in retirement more than they fear death itself. Think about annuitizing some of your savings. One very popular vehicle is a longevity annuity, which begins paying when you reach a certain age, say 80 or 85, which can help you have peace of mind that you won’t outlive your savings.”

AJ Smith, personal finance expert at Smart Asset, says calculating exactly how much you’ll receive in Social Security benefits can help too. “Comparing how much you’ll receive at different ages can help you decide when is best for you to claim your benefits. You may want to delay these payments to increase the amount you will receive later in retirement.”

If You’re Behind, Catch Up the Smart Way

Many people in their 50s have a lot of catching up to do when it comes to setting themselves up for a successful retirement. Smith also suggests beefing up your nest egg by taking advantage of retirement catch-up contributions. “The IRS retirement plan contribution limits are higher for folks who are 50 or older, so you can contribute more money to your 401(k) or IRA each year.”

Moneylend.net spokesperson Dan Blacharski says to beware of extreme advice and instead allocate money in smart ways. “First of all, don’t panic and fall victim to the ill-informed advisors who say you need millions of dollars in the bank. On the other hand, don’t go to the other extreme and succumb to false hope given by armchair advisors who tell you that anything is better than nothing – saving your spare change in a jar, or throwing a hundred dollars a month into a retirement account you started at age 55 isn’t going to get you very far. Simply setting a realistic retirement savings goal is the most important actionable step. Determine how much you will need when you retire, subtract what you will get from Social Security and any existing pensions, and calculate what the difference is per month and go from there.” He added, “Figure the tax benefit you will get from contributing to your IRA, and be sure to include the saver’s credit (worth up to $1,000) if you are eligible. Taking advantage of those tax benefits will get you a bigger tax return, but don’t use that tax check as a windfall. It’s just your own money being returned to you by the government, after all. Instead of using it to buy luxuries, put your refund check back into your retirement account as an extra contribution.”

Kevin Gallegos, vice president of Phoenix Operations at Freedom Financial Network, suggests seeking ways to earn additional income. “There’s no magic bullet if you don’t have enough money to retire. It may mean NOT retiring as soon as you intended from your current job. Or it may mean starting an encore career or taking a part-time job. For those who are close to making it, it often is possible (with determination) to generate an extra $1,000-$2,000 during the year by doing things like cleaning out the house and selling unneeded items on eBay, holding yard sales, redeeming credit card rewards, and cutting the budget. The list goes on, but you get the idea.”

Review Your Portfolio of Stocks and Bonds

“It’s a time to start thinking about if you should shift the mix of stocks and bonds in your investment portfolio, known as your asset allocation, to something more conservative,” suggests Eric Meermann, Certified Financial Planner for Palisades Hudson Financial Group. “Generally, you want to keep anything you are going to spend or pull out of the portfolio in cash and short-term bond investments. While people are working, they’ll typically be net savers during their 50s. However, as retirement looms, the need to draw down the portfolio to support living expenses is on the horizon. If retirement is just a couple years out, and you have a rather aggressive allocation, now is a good time to reconsider what it should be.”

Mike Scanlin, CEO of Born to Sell, a financial services software company, personally talks to clients every day and observes that in a world of near-zero interest rates, it’s difficult for the average person in their 50s to make their nest egg grow by investing in cash or bonds. The software helps them determine how to increase the monthly income of their portfolio without adding too much equity risk.

“Those in their 50s don’t want to assume too much risk since they are nearing retirement, but they can’t be satisfied with 1%–2% per-year yield either,” Scanlin said. “One solution is an investment strategy that yields 6% or more by buying large cap, blue-chip, dividend paying stocks that have an average dividend yield of 2.5% or more and layering on a strategy known as “covered calls” to generate an additional 3%–6% per year in option premium.”

Covered call writing is the selling of your right to sell your stock at any time to someone else in exchange for cash. This gives the buyer the right to buy your shares before the option expires at a prearranged price.

Evaluate Housing and Mortgage Investments

For many consumers, their home is their largest financial asset. An asset that should be evaluated to assess its current market value, current mortgage principal balance, estimated equity, tax basis and more, according to John Bodrozic, co-founder of HomeZada, an online hub where you can manage information about home improvements, finances and more.

The end goal is that you can look at your home from a financial standpoint and balance it with lifestyle and future investment needs.

“Those in their 50s who plan to remain in their house should create a project plan that includes future renovations, an annual maintenance budget, home-related expenses, and making sure they are properly insured for their home and its content with a home inventory,” said Bodrozic. “Depending on their situation, they could also start to think about downsizing their primary residence into something smaller, which could lower housing expenses and potentially use home equity to boost other investments, like buying a vacation home or rental properties.”

Invest in Your Health and Plan for the Long-Term

With the rising cost of insurance and prescription medications, medical costs can be a hefty portion of retirement spending, so it’s important to not only save for that time of life but take preventative measures to reduce future costs.

“Invest your money in quality nutrition and invest your time in quality exercise,” says “Nate,” the personal finance blogger behind Hacking Your Budget. “A Harvard study estimates it costs an extra $1.50 per day per person or approximately $550 per year to eat healthy. When you compare that with the average costs of taking care of an injury, illness, or health condition (for example, Diabetes costs about $7,900 per year to manage), nutrition is a great place to start.”

For some, the idea of exercise is sometimes met with fear of injury or cost of gym memberships.

Nate adds, “Exercise doesn’t have to cost a lot of money. The outdoors is free! Run, walk, hike, play sports, or ride a bike. Yes, some equipment may cost money, but over time it can certainly end up being cheaper than a gym membership.”

Besides taking care of yourself in the present, it’s important to think about long-term care insurance as well. If you’re at a point where you don’t have the expense of putting kids through college or making a mortgage payment, long-term care coverage might make financial sense for you. “In your mid- to late 50s is the perfect time to purchase this needed coverage to help with expenses of longevity — specifically when you need to move into an assisted living or retirement home,” says Brent Dickerson, owner and financial planner at Trinity Wealth Management. “Typically the younger you are when you buy this insurance, the cheaper it is, but you don’t want to purchase it too young in life because you will be paying on it for a long time. If you wait until you are too old, the premiums could have risen to an unaffordable level, or a serious illness may occur which prevents you from being able to get coverage at all.”

Harrine Freeman, CEO and owner of H.E. Freeman Enterprises, says estate planning is a must no matter what your income. “Hire a support network consisting of a lawyer, CPA and financial advisor or planner to help you set and achieve your financial goals through minimizing losses and maximizing gains, shield against legal action and penalties and minimize tax liabilities,” said Freeman. “At a minimum, establish a will, advanced medical directive and trust to identify what, when, where and how you want your assets and belongings distributed.”

It’s Not Just About Money

While financial decisions are important in the decade leading up to retirement, profit analyst and strategic advisor, Mike McRitchie, advises thinking about a few intangibles that can make or break retirement happiness. Knowing when your closest friends are retiring could play into your decision of timing your own. Staying connected with loved ones or friends now could mean more chances for quality time in retirement. Picking up an old hobby or starting a new one can keep your skills sharp and lessen the shock of having so much free time.

“Decide what the retirement you desire will be like. Plan every aspect of your day from the time you get up to the time you go to bed — seven days a week, all year long,” says McRitchie. “How will it be different a year after retirement? How about in five years, 10 years, 20, 30? I’ve seen and heard of many people who have a vague idea of all these cool things they’ll do in retirement. And after the first few months or years, they’re disillusioned and frustrated that it wasn’t what they thought it would be. When you stop going to work, you realize what it is like to have so many more hours available to you. And often there is a lot more time than ideas and activities to fill the space. That is why hobbies, social programs or groups of friends, and volunteering is often so critical. So figure it out before you get there.”

As you can see, these financial experts have seen and heard it all from those who are trying to make good choices when it comes to their retirement. Everyone’s financial situation is different, so it’s best to discuss your needs and goals with a financial planner. If you’re in your 50s, how are you planning ahead for the future?

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This Post Has 2 Comments

  1. In terms of getting the best value for long-term care insurance, there’s nothing special about buying LTC insurance at age 60. In fact, for many people waiting until age 60 is too late. You can’t buy LTC insurance if you have a severe health problem.

    That doesn’t mean that someone in their 40’s or 50’s should buy LTC insurance. Regardless of your age, you should only consider LTC insurance after the more important financial priorities are taken care of especially:

    no credit card debt,
    at least 6 months of emergency savings in a liquid account,
    maxing out your retirement account contributions every year,
    adequate disability insurance and
    adequate life insurance (if you have dependents)

    If you’ve taken care of those things and your budget is very tight, then just buy a “starter LTCi policy” that costs $50 to $60 per month. The “starter policy” would be a policy that allows you to buy more benefits in the future, regardless of changes in your health.

    Prices for long-term care policies can vary significantly from one company to the next even when comparing identical benefits. For example, some companies charge women 30% to 50% more than they charge men. Other companies charge women the same rates that they charge men.

    It’s a good idea to work with an independent insurance agent who specializes in long-term care insurance so that you can get an accurate comparison of several top policies and pick the one that is best for you.

    Scott & Carolyn Olson
    Co-founders, LTCShop.com

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