Turning 50? Here's Your Retirement Planning Checklist

Turning 50 is a major milestone in anyone's life. It provides an opportunity to reflect on where you've been...and where you're going. It's also a time to start thinking more proactively about retirement.

Planning now can help bring your vision into focus. Here are six things 50-somethings can do to prepare.

1. Envision Your Future

Assessing your lifestyle goals is a key first step to planning for retirement. Think about: Where will you want to live? Will you want to spend more time traveling, pursuing hobbies, visiting grandkids or volunteering? Do you plan to downsize, move far away, or stay in place?

Of course, there's no “one size fits all" answer. And you have to be realistic: Even though you’ll want to live on the French Riviera; your finances, health or obligations might say otherwise.

2. Set sound goals

Choosing a lifestyle will help you get a handle on how much money you'll need to live it. One common target is to replace 80% of your final working income in retirement from all available sources, including Social Security, traditional defined benefit pensions (if you’re lucky enough to have any), defined-contribution plans like 401(k)s, IRAs and annuities.

“Save as much as you can,” says Jim Mahaney, vice president of strategic initiatives at Prudential. “Then think about minimizing taxes in retirement” with accounts like 401(k)s and IRAs. Also consider a Roth 401(k) or IRA, where you invest after-tax dollars and can withdraw your money tax-free after age 59½.

Investing is a personal decision, Mahaney notes, but “when you retire you could need to fund [expenses] for over 30 years. It's important to have money for as long as you need it." It's also important to have a “well diversified pool of assets" and to keep debt to a minimum.

Finally, set a target age for retirement based on:

• Your health
• Your desire to keep working
• How much money you've saved

3. Don’t panic

Even if you feel like you're behind, it's never too late to start planning. In fact, starting the year you turn 50, you can take advantage of “catch-up” contributions — higher IRS limits Opens in new window on how much you can sock away in workplace plans and IRAs. “The government wants pre-retirees to save as much as they can,” Mahaney says, “so save aggressively in pretax and/or Roth accounts.”

What’s more, if you’re willing (and able) to keep working longer than you may have planned, you’ll have more time to keep saving and fewer years of retirement to fund. (Note that you don’t have to start withdrawing from traditional IRAs or workplace plans until age 72 (as of 1/1/2020) — and you don’t have to touch an employer-sponsored plan account as long as you keep working for them.) That’s critical because, according to the Social Security Administration Opens in new window, more than one in three 65-year-old Americans will live to age 90 — and more than one in seven will see 95.

4. Understand Social Security

If you haven’t already, go to the Social Security website Opens in new window to create an account and see your projected benefits. They’re based on the years you've been working and the taxes you’ve paid into the system. Despite headlines to the contrary, “there's a very good chance the benefits will be there" when you retire, Mahaney says — even if that's 15 to 20 years from now.

Social Security is especially valuable for most Americans because it protects against inflation, pays out for life and is taxed at a lower rate than ordinary income. Moreover, the longer you wait to start taking your benefit — until age 70 — the bigger your monthly check will be.

And when you die, you may be able to leave your benefits to a surviving spouse. Even so, married couples should coordinate benefits because, Mahaney advises, “it does get somewhat complicated." The good news is, there are ways you can maximize Social Security benefits Opens in new window.

5. Consider long-term care

Americans today can expect to live about five years longer than those of a few generations ago. But greater longevity also means more “chronic conditions and functional and cognitive impairment in the later years of life," according to The Commonwealth Fund Opens in new window.

Result: The U.S. Department of Health and Human Services says that seven in 10 Americans will Opens in new window need some kind of long-term care after age 65. And that kind of care costs — nearly $100,000 a year for a private room in a nursing home, $49,000 a year for a full-time home-health aide, reports The Wall Street Journal Opens in new window.

So, it pays to plan. If you retire before age 65 — when Medicare kicks in — you'll need private health insurance, either from a former employer or a policy you buy directly. But for later on, look into long-term care insurance (or a permanent life insurance policy with a benefits access or long-term care rider) — which can be far more expensive if you buy when you’re older. And make sure you have a living will (advance care directive) and medical power of attorney. Prudential offers a variety of solutions to help pay for your future health needs Opens in new window.

6. Build a legacy

For estate planning, you may not be worried about federal estate taxes — chances are your heirs won’t owe any since the current 2020 estate tax exemption is $11.58M— but “make sure the assets you've accumulated go where you want them to go," Mahaney says.

One idea is to put assets into a revocable living trust, which can be changed during your lifetime. But whatever estate planning strategy you choose, make sure you've named (or updated) the beneficiaries you want for life insurance policies, annuities, IRAs and other investments.

This is particularly important if you’re divorced and have children or stepchildren from multiple marriages. Besides multiple sets of potential heirs, there may be years of financial assets and debts accumulated by you and your ex-spouse(s). A comprehensive estate-planning strategy is critical to deal with the complexities of blended families.

Whatever your situation, it’s critical that your needs — financial, health, lifestyle — are covered before deciding what to leave behind, and to whom. And it's important to have open conversations with your loved ones while you still can about what they should (and shouldn't) expect in terms of inheritance.

Footnotes

Aaron Task is former Editor-in-Chief of Yahoo Finance and Digital Editor of Fortune.

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