- Jim Cantrell
Saving for retirement when you’re in your 50s
Your 50s is the time to think seriously about retirement planning. You’ve reached (or are close to reaching) your peak earning potential, hopefully you’ve found a satisfying and enjoyable career, and you have saved some money towards your post-employment life goals. Because you are closer to retirement, it is likely that you have a better vision of your retirement lifestyle.
Although your exit from the workforce is still several years away, there are some important steps you can take while in your 50s to ensure your retirement plans allow you to have a comfortable retirement.
Now that you’re in your 50s, it is extremely important that you are aware of all your investments, your potential social security income, and any pensions. Many workers in their 50s have changed jobs several times, so it is not unusual to have a variety of 401(k) or Roth IRA investments in separate accounts, as well as deferred compensation plans. Once you have a list of all your accounts, we can help project the potential value of those investments on your targeted retirement date. This number is your baseline for the future. If you’re lucky, you will discover that years of saving will pay off in a nest egg large enough to fund your retirement dreams. If a shortfall is discovered, there is still time to correct the imbalance through proper financial planning for retirement.
Catch up contributions
If you discover a shortfall, take heart. In 2019, individuals age 50 or older can save an additional $6,000 (up to $25,000 total) in a 401(k) and an additional $1,000 (up to $7,000 total) in a Roth IRA. These additional contributions can go a long way towards making up for funds you might not have been able to save earlier. In addition, individuals over the age of 55 can save up to $4,500 into a Health Savings Account (HSA) vs. $3,500 for those under age 55. If you’re married filing jointly, you can save up to $7,000 into an HSA ($8,000 for those age 55+) if one member of the married couple has a high deductible health plan (HDHP). Although an HSA account is not a retirement savings plan, it is a good idea to establish an HSA for post-retirement medical expenses.
Congratulations, you’re in your prime earning years! Unfortunately, your higher income might disqualify you from certain investments, such as a Roth IRA. If you are single, you must have a modified adjusted gross income (MAGI) under $137,000 to contribute to a Roth IRA for the 2019 tax year, but contributions are reduced starting at $122,000. If you are married filing jointly, your MAGI must be less than $203,000, with reductions beginning at $193,000. If you find yourself phasing out of a Roth IRA, we can help find other opportunities for investments to help you continue to build up savings.
Another tax concern for investors in their 50s is asset allocation and liquidity. As you get older, it is likely your financial advisor will begin reducing the volatility of your investments. Unfortunately, that can occasionally leave an investor in a situation where cash is needed, but the only available sources of liquidity are in taxable accounts. In that case, there are ways to manage your withdrawals, balance your stock portfolio, and ensure reduced or no tax penalties. Including your financial advisor in your annual tax planning can also help by ensuring your assets are located properly to take advantage of tax loss harvesting. During times of a bear market, we can work with you to determine how to best handle losses from a tax planning standpoint.
Planning a realistic exit
When do you plan to retire? If you’re like many in their 50s, you’re planning to “downshift” into retirement by working part-time before exiting the workforce entirely. A September 2016 Bankrate survey found that 70% of adults plan to work “as long as they can” and only about half of the survey respondents planned to retire in their 60s. Now is the time to think about what you want your retirement to look like from a lifestyle perspective. Be detailed. What do you see yourself doing every day? Where will you live? How much do homes cost in that area? How will you maintain your mental and physical health? Is there a dream career you want to pursue? Now is the time to try it out. For example, if you think you want to open a flower shop after your retirement, get a part-time job in a flower shop now. Hopefully, you’ll love working at the flower shop as much as you think you will. But if it turns out that it’s not your cup of tea, you’ll have plenty of time to dream up a new option for your future.
With the advances in healthcare, retirees are living longer, healthier lives than ever before. By taking time to carefully consider your retirement dreams in your 50s, you can ensure that your retirement is everything you hope it will be.