5 Tips for Retirement Planning in Your 50s
by Steve Lewit
There are critical steps you need to take for retirement planning in your 50s.
That’s because, in the United States, the average retirement age is 62. In fact, about 64% of all Americans decide to retire between the ages of 55 and 65, meaning that your 50s will likely be a very important time for tying up loose ends and preparing for retirement.
There are quite a few things that can make retirement planning difficult for anyone, including our neighbors in Buffalo Grove, IL. Examples include the uncertainties of future expenses and forecasting how long you will live. Some people retire at 62 thinking that they will live to be 80 but end up living another 5 to 10 years.
In a recent survey conducted by the Employee Benefit Research Institute (EBRI), 61% of respondents said that preparing for retirement makes them feel stressed. Additionally, the survey revealed that about 90% of retirees rely on Social Security and that about 40% of workers “expect to need $1 million+ to live comfortably in retirement”—two figures that can make the retirement planning process even more stressful during an era of significant economic uncertainty.
Regardless, about 2 in 3 people are still confident in their retirement plan. If you are in your 50s and are planning on retiring soon, be sure to keep these helpful tips in mind.
1. Be conservative with every numerical estimate.
As you have likely discovered by now, planning for retirement involves a lot of estimating. In addition to needing to estimate how long you are likely to live—something that can be extremely difficult, if not downright impossible—you will also need to estimate how much your nest egg will grow, how much things will cost in the future, where the economy is likely moving, and many other factors.
It can be frustratingly difficult to know what a gallon of milk is going to cost in 2048—a year when many people retiring this year are still likely to be alive. When generating these estimates, it is a good idea to assume that everything is going to cost more than you currently think it will. Even if the inflation rate has historically been about 2% per year, you should assume that figure will increase (and consequently, that you will need more money).
You should also assume that your portfolio will grow at a rate less than the historic average and that your house (and all other speculative assets) are worth less than what you initially assume. Although this may mean you need to wait a few more years before you can retire, it is better to be safe than sorry.
2. Take advantage of an opportunity to play catch-up.
Once you reach age 50, you will be allowed to make more contributions to your retirement accounts than ever before. For example, rather than being limited to $19,500 per year in contributions to a 401(k), individuals above the age of 50 can contribute an additional $6,500. If your employer is willing to match your 401(k) contributions, these “catch-up” years are an opportunity for you to have easy access to what is essentially free money.
By being conservative with your spending, paying off large debts (such as your mortgage), and maximizing these contributions during these final years of work, you can begin to position yourself for a better retirement. A financial planner can help you decide which investment choices are right for you.
3. You need income—not just wealth.
When thinking about retirement, many people like to talk about “their number,” as if there is a magic number that will guarantee they are financially secure for the rest of their life. However, unfortunately, life just isn’t that certain. You might think that $1.47 million will be enough for you to make it only to soon discover you are facing unexpected expenses and other financial challenges. This is why your financial advisor will surely tell you that having a big pile of money simply isn’t enough; if you want to truly stay golden in your golden years, you will also need to have income.
Fortunately, there are many investment vehicles that make it possible for retirees to maintain a perpetual stream of income. Investing in dividend-yielding stocks (rather than growth stocks), bonds, annuities, life insurance, and other comparable assets will help give you a sustainable income. Recently, investing in rental properties has also become a popular option.
4. Don’t forget about long-term healthcare expenses.
As suggested, your retirement years can come with many unexpected expenses. The most common unexpected expense is healthcare. Your future healthcare needs are not only very difficult to forecast, but (at least in the United States) healthcare costs have also been growing at an exponential rate. According to the CMS, the average healthcare expenditures for an American was $10,739 in 2017, with the costs being even higher for those above the age of 50.
When planning for the future, you need to be sure that your healthcare costs are absolutely accounted for. Ask yourself, “if I were to be diagnosed with a costly disease tomorrow, would I be in a position where I will be completely covered?” If the answer to this question is either a no or an “I don’t know,” then you may want to readdress your current coverage situation.
5. Remember that retirement doesn’t need to be “all or nothing.”
In the broader retirement discussion, many people wrongly assume that retirement is a binary lifestyle. It can be very tempting to think only in terms of “completely retired” or “completely working” and discount the valuable “semi-retired” lifestyle that many Americans—especially those in their late 50s or early 60s—currently enjoy.
There are many different ways a person could be semi-retired. Oftentimes, this might just mean cutting back from a 40-hour workweek to a 20-hour workweek. It might mean giving up their old job to earn money doing something you once considered to be a hobby.
Ultimately, as your financial advisor will tell you, the way you scale out of your working life will depend on your current personal and financial situation. But don’t forget the possibility of being partially retired—this will be one of the most effective ways to close the gap when it comes to income uncertainty.
These days, it is almost impossible to be in your 50s without at least occasionally worrying about your retirement. Retirement planning can be extremely stressful and there will inevitably be some difficult questions you’ll need to answer. But by working with a trusted financial advisor and keeping these helpful tips in mind, you’ll be one step closer to closing this chapter of your life and actually being able to retire.