As you enter your 50s, the idea of retiring one day starts to become more of a reality than a fantasy. But your working years aren’t behind you quite yet, even if your retirement age feels so close you can taste it!
What you do during this decade can make or break your ability to retire as planned. Taking the right actions now will help ensure you have the retirement income you need to live comfortably when you leave your job behind.
These eight steps will help you evaluate your nest egg, get your finances in order as you approach and plan for retirement.
Automate & Track Your Savings
Automating and tracking your savings at this point in your career is extremely important. And we’re not just talking about your retirement savings.
You should also automate and track your contributions to taxable accounts, high-yield savings accounts and any other accounts where you’re saving money you won’t spend in the near future.
If you’ve established a savings plan with your financial advisor, monitoring your inflows and outflows will let you know if the amount you’re saving is on track with the plan you created.
Plus, seeing how much you save each year can be incredibly rewarding and motivate you to stick with it year in and year out.
Project Your Future Expenses in Retirement
As you get closer to leaving your full-time career behind, retirement expenses become a little easier to estimate. For example, you may already know how much you’ll pay for items like housing, insurance, and utilities.
However, estimating expenses still requires a lot of guesswork because you don’t know what your health will be like in retirement. And healthcare costs can be one of the biggest retirement expenses retirees face.
You may also not yet know how you want to spend your time in retirement. For example, traveling extensively costs more than spending your days in your garden or spoiling your grandkids.
During this decade, it’s best to be conservative with your retirement goals and err on the side of overestimating rather than underestimating expenses.
Run a Tax Projection
A tax projection is an analysis completed by tax professionals and financial advisors to help individuals make decisions that result in tax savings. Having a professional create and update tax projections in your 50s can help you make important retirement-related decisions, including the following.
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Roth IRA conversions. If you’re considering a Roth conversion in your 50s or 60s, you need to know your expected tax liability to ensure you have enough money on hand to cover the tax bill the conversion generates.
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Charitable donations. If you want to give to a donor-advised fund or make other charitable contributions, running a tax projection can help you decide when a contribution might be the most beneficial and how much you need to contribute to realize meaningful tax savings.
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Retirement contributions. Understanding how your future tax rate may compare to your current rate may affect where you put your money in your 50s. For instance, this knowledge can help you determine whether it’s more advantageous to make pre-tax contributions or tax-deferred contributions to your retirement plans.
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Estimated taxes. If you have considerable income beyond your W2 wages, running a tax projection can help ensure you pay enough estimated taxes during the year, so you don’t get penalized for underpayments at tax time.
Review Insurance Coverage
At this stage of your life, you probably have multiple insurance policies to protect you and your family from the unexpected. Now’s a good time to review each policy’s coverage, premium, deductible and policy limits to ensure they still meet your needs.
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Life insurance. If you have dependent children or a spouse who relies on your income, ensuring you have adequate life insurance to cover expenses if something happens to you is essential. It can also be a good way to leave an inheritance to family members after your death.
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Disability insurance. Up to one in four U.S. adults has a disability, according to the CDC. And the older you are, the more likely you are to have a disability. Disability insurance can help replace a portion of your income if you can’t work.
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Property and casualty (P&C) insurance. Having adequate homeowners, auto, umbrella, flood and other types of P&C insurance can help protect your finances after many of life’s mishaps.
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Long-term care (LTC) insurance. If your company offers long-term care insurance, taking advantage of this benefit is often a good idea. On the other hand, private LTC insurance can be extremely expensive and complex, so it is best to first speak with your financial advisor before pursuing coverage outside of a group plan.
Make Catch-Up Contributions
When you turn 50, annual contribution limits increase with the addition of catch-up contributions. You can make the additional contributions to your employer-sponsored retirement plans and individual retirement accounts (IRAs). Here is a helpful resource on contribution limits after age 50.
In most instances, making the catch-up contribution is worth it—if you have the extra income. However, there may be times when it’s not your best option. If you don’t have an adequate emergency fund, ratcheting up your emergency savings should be a priority.
Additionally, if you have other short- or mid-term financial goals you want to achieve, you may want to hold off on catch-up contributions as long as doing so doesn’t jeopardize your long-term retirement plan. These are decisions that your advisor can and should help you make.
Revisit Your Estate Plan
As life evolves, the plans you previously made may no longer meet your or your beneficiaries’ needs. Your 50s are a good time to review your estate plan to see if you need to make any tweaks or major changes to the decisions you made years ago.
When doing so, it is also crucial to periodically confirm that all your assets are structured in a way that aligns with this plan.
For example, let’s say you had an attorney draft a Revocable Trust for you a few years ago with the plan of having this trust inherit your retirement accounts. Since then, you started a new job and have a new 401(k) as a result.
When you opened the 401(k), did you make sure to designate this trust as the beneficiary? Little things like this are so easy to overlook and can result in an unwanted outcome with your estate.
Evaluate Expected Social Security Benefits
Knowing your estimated Social Security benefits is good information for your financial advisor to have so they can incorporate it into your retirement income projections. You can find your expected benefit on the Social Security Administration website.
Because benefit amounts differ based on when you start collecting, having an estimate can help you decide the best age to begin receiving payments. However, you don’t need to make a final decision until your 60s.
Maximize Your Employment Benefits
Participating in an equity compensation program—if your employer offers one—can boost your income and help you build long-term wealth. But you have to be careful that you’re not overexposed to your company’s stock, or any stock for that matter.
Additionally, equity grants are subject to complex tax treatments. Not managing the exercise or sale of awards properly could negatively impact your tax situation.
How Plancorp Can Help Make Sure You’re on Track for Retirement
As you get closer to retirement age, you have less room for error with your money management decisions. Working with a professional can help you stay on track and avoid mistakes that can derail your hard work.
At Plancorp, our advisors consistently revisit your retirement plan to ensure it still aligns with your risk tolerance and financial goals and make adjustments when it doesn’t.
Check out our two-minute financial analysis to see if you’re making the right decisions with your money and get feedback based on your answers.
