The big 5-0 can be a financial wake-up call.
If you’ve hit the half-century mark, you might be closing in on retirement. In fact, the average American retires at age 62.1 With that horizon in sight, do what you can now to make the future as bright as possible.
Here are three tips to help you protect yourself in these crucial years:
1. Know how much you’ll need.
Now that you’re in the homestretch of your career, you need to assess how well you’re positioned for retirement. Too many Americans are just guessing and hoping for the best. A mere 39% have taken the time to calculate the amount they’ll actually need to live comfortably.2
- Start with an online retirement calculator and answer a few basic questions to determine your general target number.
- Really think about what expenses you’ll have to cover, and look at all the possible income sources. Be realistic about your future lifestyle.
- It’s all about preparation. You don’t want to be caught by surprise just when you’re planning to relax.
2. Play catch-up.
In a survey of baby boomers, only 24% expressed confidence that they would have enough money to last through retirement.3 And most of them said the one thing they would have done differently is save more. If you feel that you have fallen behind, there are still steps you can take to gain some ground.
Take advantage of catch-up contributions. If you’re 50 or older, you can contribute a maximum of $25,000 to your 401(k) each year. That’s $6,000 more than other workers are allowed. You can also invest an extra $1,000 in your IRA each year, in addition to the standard limit of $6,000. This is a great chance to give your retirement account a big boost.
- Meet with your financial advisor to review your investment mix. You may still maintain a growth-oriented portfolio without taking on too much risk.
- Resist the temptation to pay for your child’s college if it means robbing from your retirement. You won’t be able to take out a loan to finance retirement.
- Pay off the house if you can. Tackle high-interest debt first. But if your savings are on track, you could increase your mortgage payments and save a good amount in interest.
- Your 50s are no time to take it slow. In fact, it’s a good idea to increase your momentum when it comes to retirement savings.
3. Plan for long-term care.
No one likes to talk about it, but more than half of all 65-year-old Americans will need long-term care at some point in their lives.4 So it’s not too soon to think about how you could cover that expense.
- If your employer offers a health savings account (HSA) option, it could be a good opportunity to build an account for future expenses. Like a flexible spending account, the money is contributed pretax. Unlike an FSA, the money doesn’t have to be spent, but can potentially grow over years. And when used for qualified medical expenses, withdrawals are exempt from taxes as well. The maximum annual HSA contribution for an individual is $3,500, but people over age 55 can bump that up another $1,000.
- Shop around for long-term care insurance. Standard health insurance does not cover services like in-home assistance with daily activities, and those expenses can really deplete your retirement savings. The price of premiums increases as you age, so it may be a good idea to meet with a financial advisor now to discuss if this coverage should be part of your financial plan.
As you turn the corner into retirement life, keep your eye on the prize. Fun fact: Our recent Wisdom of Experience survey found that investors who take the time to visualize what their ideal retirement would look like recommend saving 31% more than those who are putting money aside without taking time to consider what it’s for. So close your eyes, picture that beach house, world tour or family reunion, and set your sites (and your investments) on making it happen.