For people in their 50s, the dream of retirement is just around the bend. Retirement life could include relocating to a low-cost South of the border exotic locale, or staying in your home with a regular golf routine. Or, perhaps just simply spending more time with the grandkids.
No matter the goal, there are critical money management steps investors in their 50s need to take to ensure their dreams can come true.
[See: 12 Tips for Investors in Their 50s and 60s.]
Develop a comprehensive financial plan. It’s hard to get someplace without a map. Without a clear picture of both where a person currently stands and where they are attempting to get to it is foolish to try and develop a strategy, says Craig Bartlett, regional manager at U.S. Bancorp Investments in Minneapolis. “At US Bancorp, we utilize our RealSteps process to gain an understanding of where people are in terms of their financial situation, what they hope to accomplish during their retirement and then we recommend appropriate strategies,” he says.
Get a handle on your present and future budget. People should do a careful assessment of their current and future expected retirement expenses, says Ann Minnium, certified financial planner at Concierge Financial Planning in Scotch Plains, New Jersey. “Clients always complain that this is a painful process, but how can I — or they — determine whether they can retire if they don’t know how much they will be spending?” Minnium says. “I usually suggest clients go through their online banking and credit card bills to determine exactly what they are spending each month. Once people have determined their current spending they can estimate what expenses may change during retirement. Perhaps debts will be paid off or commuting expenses will no longer be a factor. They can also determine what expenses they can currently do without.”
Save more. Investors should be saving 10 percent of their incomes, says John Piershale, certified financial planner at Piershale Financial Group in Crystal Lake, Illinois. “On a salary of $60,000 per year saving 10 percent per year — for 10 years at 5 percent, a person could realistically accumulate about $75,000,” he says.
Max out catch up contributions. Don’t pass up the benefits Uncle Sam is offering to you. Once you hit age 50 you can take advantage of the “catch-up” contributions to 401(k), 403(b) and IRAs. “For 2016, people over age 50 can contribute an additional $6,000 for a total of $24,000 to their 401(k). The catch up for an IRA is $1,000 for a total of $6,500,” Minnium says.
Consider buying long-term care insurance now. It may be difficult or more expensive to get later on, especially if health issues crop up. “I suggest people also try to focus on their health. Make an effort to lead a healthy lifestyle,” Minnium says. “I have a client couple, Peter and Susan, who applied for long term care insurance in their late 40s. It’s a good thing they did because by the time Peter was 52 he had been diagnosed with several heart conditions and would no longer qualify for coverage.”
Pay down debt. People should plan to retire without any debt, Minnium says. “Paying off any outstanding debt should be a priority before retirement. Having to pay a mortgage during retirement can become very cumbersome, especially as inflation, even at a low rate, eats away at the purchasing power of your savings,” she says. She urges investors to “live smaller” if that means no longer having a mortgage after they stop working. “My clients who are able to comfortably retire in their 60s live small, well within their means and have no debt when they retire.”
[See: 13 Money Hacks to Turbocharge Your Investments.]
Tweak your stock and bond allocation. As you approach retirement age shift to a more conservative asset allocation between stocks and bonds. If a large market downturn occurs right before or after retirement, you will have a very difficult time making up the loss due to remaining portfolio life and distributions taken for living expenses.
People tend to think that taking more risk will improve their returns and probability of retirement success, but this is often not the case, says Minnium, who recalls working with a couple worried about finances after one of them was laid off at age 64.
“They were 80 percent invested in stocks, which included volatile emerging markets positions. Not only did their risk assessment indicate that they were more moderate investors, but their proximity to retirement and age indicated that a more conservative portfolio would be more appropriate,” she says. “(Their) probability of plan success was greatly improved by assuming a more conservative 55 percent stock/45 percent bond portfolio,” Minnium says.
Make changes to your company retirement plan. If you are not making full, maxed-out contributions to your employer sponsored retirement plan, then do so, Piershale says. “This lowers your taxable income and helps you fund your own retirement — do yourself a favor.”
If you have left a company, roll your old employer sponsored retirement plan over to an IRA. “There’s more investment choices and it’s just easier for your surviving spouse or children to administer estate planning with an IRA as opposed to an employer plan if you die,” Piershale says.
[See: 8 Easy Ways to Make Money.]
Decide how you will spend the most valuable commodity: time. Before retiring, investors also need to consider how they will spend their time once they are no longer working, Piershale says. “People who have things to do and places to go find they feel better about themselves and are more fulfilled than those who have nothing going on.”
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9 Steps to Take Before Retirement originally appeared on usnews.com
