Your 50th birthday is a big milestone in your life, and once you’re past it, you need to ramp up your retirement planning. Hopefully, you’ve been doing at least some saving and building up a nest egg, even if you haven’t quite been hitting your goals every year. But no matter what your financial situation is like, you can make sure you’re on the right track with a few simple planning tips to use throughout your 50s.
1. Figure out Your Goals
When it comes to your goals, there are two main ones that you should have – your monthly savings goal and your goal for your account when you retire.
If you’ve been contributing as much as possible to both your 401(k) and your IRA every month, then you’re likely in good shape and should continue doing that. If you haven’t, that should be your minimum monthly savings goal. Considering the tax benefits of those plans, you’re practically giving away money if you don’t contribute the maximum.
For your account goal when you retire, a common number that financial professionals mention is 10 times the amount you make in your final full year of working. Of course, this will depend on your income, your lifestyle and the expenses you expect to have. It’s best to err on the side of caution, though, considering how most people underestimate the amount they’ll need when they retire.
2. Plan to Get Rid of Your Debt
Debt isn’t good at any age, but you definitely don’t want to deal with it when you’re close to retiring or, even worse after you’ve retired. In your 50s, you should be aggressively paying off almost all your debts. This isn’t the time to carry a balance on your credit card or take out a loan for a new car.
Many people in their 50s are still paying off their mortgages, and you don’t need to be as aggressive about that since this type of loan tends to have a low-interest rate. You’ll likely get a better return on money that you invest than if you had used it to pay extra on your mortgage. Just make sure that your mortgage will be paid off by the time you retire. If not, you should start paying extra to pay it off more quickly.
3. Determine Your Appetite for Risk
With your retirement plan, you’ll be able to invest your money in stocks and bonds, with stocks earning a historical average of a little over 10 percent annually, compared to about 5 percent for bonds. This obviously doesn’t mean that you want to go with an all-stock portfolio, though. You also need to be prepared for a worst-case scenario where the stock market crashes. It’s important to have a diverse mix of stocks and bonds just in case.
You can set up your portfolio conservatively or with a higher risk and reward. If you’re a bit behind in your savings, you may want to start favoring stocks to hopefully earn a higher return and get back on track. If you have a solid nest egg already, you may be better off playing it safe.
As everybody learns and many learn too late, the earlier you start planning for when you retire the better. But there are still steps you can take in your 50s to make sure that you’re set when you do decide to retire. The three steps above will put you on the right track.
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