Turning 50 is a milestone for many reasons: Children are grown and the big debts, such as saving for college and the mortgage, make less of a dent. Financial planning in this decade is tricky, however, and hugely important.
For many, the target retirement age is now in sight. As you get older, time seems to move faster as well. You really understand how quickly 15 years can get by you and the importance of avoiding bad money choices as retirement nears.
Here are some of the key financial planning moves to make in your 50s:
1. Make a clean break with your children
Financially coddling your kids is a huge mistake as you edge closer to retirement age. Unless you have so much money that a CPA is advising you to take advantage of tax-free gifting, don’t splurge on them now. They can borrow for grad school, a new car or vacation. You cannot borrow to finance your retirement or medical needs.
2. Avoid major new debt
It might make sense to downsize or move to a lower-tax state. Too many couples let that decision turn into a new, long-term mortgage. Consider how your cash flow will work in retirement. If your new digs are a big part of the spending pie, lower your sights and buy something cheaper.
3. Consider long-term care insurance
The great unknown of retirement living is medical costs. If you remain healthy, no problem. But any chronic condition can turn into an ongoing expense that greatly restricts your lifestyle. Long-term care insurance is available to people in their 50s that many in their 60s can no longer buy or simply cannot afford.
4. Save your maximums, including “catch ups”
The government wants you to retire well. Once you hit 50, you can save more tax-deferred or tax-free than those under 50 in IRAs, Roth IRAs and, at 55, in health savings accounts. Currently, that figure is $5,500 per person for IRAs, so a couple could put an extra $11,000 away, on top of the normal limits. Use it or lose it.
5. Invest for the decades to come
It’s easy to look at 65 as the “finish line,” but the fact is you are likely to live 20 years or more. If you are 50 today, that’s 35 years of market ups and downs, inflation and all the rest of it. While moving toward more conservative investments makes sense as you get older, don’t overdo it. You’ll need the power of compounding to ensure that your nest eggs lasts well into your later years.
Making the right moves in your 50s can dictate the success or failure of your retirement plan. Take things step by step and think about the long-term and you will find that your money will work hard to take care of you later on.