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Firm Up Retirement Planning in Your 50s

Jan 07, 2021 3 min read

Key takeaways

  • 50-somethings can “catch up” on retirement saving.
  • Consider locking in guaranteed income through an annuity.
  • Start planning for potentially high health care costs.

 

 

When you enter your 50s, all your long-term planning starts to come into focus. Retirement is getting closer, but there’s still time to make crucial changes that can help ensure you meet your financial and lifestyle goals.

That’s because, even at 50, many of us are still not close to ending our working years. This means there could be time to close gaps you may have ignored over the years, as other priorities—such as children’s education or mortgage payments—may have held up your retirement-saving strategies.

Here are some ways to help boost your savings and prepare for the time when you’ll finally step away from the office (even if it’s at home) for good.

 

Consider the advantages of "catch-up" rules

One of the perks of turning 50 is that you can put away more money than usual in your 401(k), 403(b), IRA or other retirement savings accounts. Specifically, if you’ll be at least 50 by Dec. 31, you can make up to $6,500 in extra “catch-up" contributions to workplace plan accounts this year ($1,000 for IRAs) on top of the usual IRS limits. This means if you’re eligible to save through a workplace account, you can sock away fully $26,000 in traditional pretax dollars (or Roth after-tax dollars if available). For IRAs, your 2021 contributions can top out at $7,000.

Besides helping to fund your future, adding the extra cash has a positive impact on your taxes: Savings in a pretax account (or tax-deductible IRA) aren’t taxed until you withdraw the funds in retirement, while Roth withdrawals are federal tax-free if you meet certain criteria.

Of course, saving $19,500 a year—let alone $26,000 including catch-up contributions—can be a tall order. If that’s the case for you, consider increasing your savings rate by one or two percentage points, then raising it periodically by similarly small amounts.

Also, if your kids are now on their own, see if you can shift the amount you’d been saving for their education or car (or spending on their cell service) toward your own future. Moving it automatically from your paycheck to your retirement account can take the sting out of saving more. After all, if you don’t see the money, you’re less likely to miss it.

 

Look at locking in income

Financial professionals often recommend that you build a nest egg large enough to provide 80% of your final working pay throughout retirement. Everyone’s situation is different, of course, and you might do fine on more or less, depending on where you live, the lifestyle you want and other factors.

To avoid running out of money too soon, it’s wise to keep a portion of your funds in growth investments like stocks. But investment markets—and the income they generate—are far from guaranteed. That’s why you might want to consider protecting at least some of your income with an annuity.

Sold by insurance companies (like Prudential), annuities come in a wide range of types, and many used to have a reputation for hidden costs and onerous restrictions (that’s begun to change). But their key benefit remains: You can lock in guaranteed payments that start in the future ("deferred" annuity)—typically at retirement—or right away ("immediate"). Some annuities promise a set rate of interest ("fixed"), others are tied to investment performance ("variable"), while others offer a combination of both.

This can be a way to supplement your other retirement income (including Social Security) for a set period—or even for life, depending on the type of annuity you buy. (In general, the earlier you lock in a deferred annuity, the less it will cost.) Also, you can usually choose to provide income for your spouse or partner if you should die before they do.

 

Prepare for a longer life

When looking at your retirement goals, you don’t need to predict the future. Instead, you should consider the probable…like health care costs. According to Investopedia, a typical 65-year couple who retired in 2019 can expect to face $285,000 in medical expenses throughout their rest of their lives.1 And future retirees are likely to pay even more.

A key reason is longevity. With people living longer than in past generations, they need more checkups, doctors’ appointments and prescription drugs. But fully seven in 10 seniors Opens in new window will also need some amount of long-term care (LTC), whether at home or in a dedicated facility. Depending on your need, these could cause your medical costs to skyrocket.

One potential solution is long-term care insurance, which helps pay for costs associated with adult care or assisted living. (These expenses are often not covered by Medicare, Medicaid or traditional insurance.) Trouble is, even though it’s cheaper if you buy in your 50s than later on, long-term care policies have become prohibitively expensive for many (and harder to find as a result). So instead, many preretirees are turning to life insurance policies that include “living benefit” riders that can cover long-term care costs; “hybrid” life/LTC policies; or “self-coverage” by saving more they’d planned (and perhaps hoping their health care costs won’t be catastrophic).

 

What you can do next

At 50, it’s not so much about where you are compared to others. Instead, it’s how you’re preparing for your own retirement based on the lifestyle you want. So if your retirement savings aren’t where you want them to be, start to play “catch up.” If you don’t want to be a slave to market volatility in retirement, consider protecting at least some of your income with an annuity. And if you haven’t already, start planning for the kinds of health care costs that could turn your golden years to lead.

 

Annuity contracts contain exclusions, limitations, reductions of benefits and terms for keeping them in force. Your licensed financial professional can provide you with complete details. Please consult your tax and legal advisors for advice pertaining to your particular circumstances.

Footnotes

1 Investopedia, “How to Plan for Medical Expenses in Retirement,” Rebecca Lake, Nov. 19, 2019

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