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Five Things to Do in Your 50s to Prepare for Retirement

Five Things to Do in Your 50s to Prepare for Retirement

January 23, 2024

For many folks, hitting age 50 can be a bit jarring as retirement gets closer. The good news is that you have plenty of things you can do to improve your retirement plans after age 50. Below are five things I think could make a real difference for every family. Let me know what you think – rdunn@dunncreekadvisors.com.

If you want to talk over these ideas with an experienced fiduciary financial planner, I would be honored to visit with you. Just follow this LINK to find a time for us to have a get-acquainted visit.

  • Maximize retirement contributions. One of the great things about becoming “better than 50” is that you have options to increase your tax-advantaged retirement savings using catch-up contributions and it can make a real difference.

In 2024, the IRS permits those better than 50 to contribute more money to their retirement accounts.

  • Most workers can add $1,000 to an IRA on top of the standard $7,000 limit.
  • Self-employed workers with a SIMPLE IRA can add $3,500 above the $15,500 limit.
  • 401(k) Participants can add $7,500 to the standard limit of $22,500. And you have the option to make ALL your contributions AFTER tax. These Roth 401(k) contributions will grow tax-free and stay tax-free when you spend the money in retirement.

These are great opportunities to add to retirement savings, but, according to Vanguard's How America Saves report, only 16% of retirement savers make these additional contributions. How much difference would it make for you and your spouse if you each maxed out a Roth 401(k) with catch-up AND a ROTH IRA? From age 50 to age 65, the increase in savings could be substantial.

  • Optimize your investments for tax efficiency. We all hate to pay taxes. But consider that your retirement savings will likely be invested for 15-30 years and THEN you will spend it for 20-30 years. You have a pretty long time horizon for most of this money. Will taxes rise or fall over that time? Consider these two facts:
  • S. income tax rates are historically low.

  • U.S. federal debt is historically high.

For many families, it makes sense to pay the tax on retirement savings now. Because:

  • Maybe tax rates will be higher in the future.
  • Probably we will spend as much in the first few years of retirement as we spend now. If it’s all out of traditional tax-deferred accounts, our income tax will NOT go down.
  • Probably it’s easier to pay the tax today when you are still working full time and have routine cash flow. And you probably can pay the taxes through payroll deduction which helps.
  • Certainly, retired families hate paying taxes on IRA distributions.

Don’t forget that when you turn 73 you will be required to remove some money from your tax-deferred retirement accounts. For some families, this can create a surprising tax burden.

Every family has different specific factors, but I can help you sort things out a make sure you are using tax-smart investing strategies. Set a time to talk with me about it HERE.

  • Consider how you wish to work and earn over the next 20-30 years.

According to the Social Security Administration, if you turn 50 this year, you can expect to live into your 80s.

  • Men born in 1974
    • At birth, they were expected to live to 81.5
    • If you survive to age 65, you are expected to live to 86.4.
  • Women born in 1974
    • At birth, they were expected to live to 85.7
    • If you survive to age 65, you are expected to live to 88.7.

These days more and more American workers wish to work past age 60. Studies show that the structure, community, and the sense of purpose that many people derive from their work improves their quality of life, their health, and longevity. Often, having a continuous income, even if it may be reduced over time, is very helpful to the overall retirement plan.

As you turn 50, take some time to think about how you wish to work and earn in the future. Take time now to lay the groundwork for a future shift to different work. Make connections. Build skills.

  • Understand where retirement income will come from and when. Since we expect you will live into your 80s, and most people enjoy working in some capacity for longer, you should think about when and how much retirement income you will need. In particular:
  • Social Security. Studies show that if a worker lives to her 81st birthday, she will get more dollars from Social Security if she starts taking benefits at age 70 rather than any time before that. Several factors come into play with a married couple, so it’s a good idea to contact me for a Social Security Maximization analysis to look at your situation. Set a time that works for you HERE.
  • Do you qualify for any pension from any source? Very few workers turning 50 participate in pension plans, but if you do it’s important to check it out. Some pension benefits will increase every year that you delay taking the benefit. Others do not. You need to know.
  • Deferred Compensation. Do you participate in a deferred comp program through work? When can you access those funds? How much can you expect to see?
  • Guaranteed Income. Do you own any guaranteed income contracts? These instruments are often complex, and it pays to do your homework. Again, you want to understand when to turn on the income for maximum benefit and you want a realistic estimate of how much income you can expect.
  • Distributions from Investments. When will you need to tap into your tax-deferred and tax-free retirement accounts? This is another spot where having a pool of tax-free money gives you important flexibility as you create income after your earnings have stopped.
  • Consider how you will manage your old-age health care. Studies show that the average American needs some help in their older age. The average is around three years. If that care is full-on nursing home services, the cost can be significant. Genworth Insurance research shows that in 2021 the average cost for a private room in a nursing home in the Minneapolis-Saint Paul metro area was $13,055 per month.

There are a few ways to cope with the aging process, and if you have helped your parents through this you know.

  • A spouse can care for an ailing spouse. It’s a burden and often shortens the life of the healthy spouse.
  • A child or family member can provide care. This is a burden and can be tricky in some families.
  • You can dedicate some of your retirement money. You can build a separate account in your retirement savings plan to cover potential long-term care costs. It will take a big chunk out of your spendable retirement money.
  • You can purchase insurance that provides funds in the event you need them. Modern options will provide a death benefit to your estate if you do NOT need care OR provide funds to pay for care if you need it.

There is plenty to consider. If you would like to visit with an experienced, highly-trained, CERTIFIED FINANCIAL PLANNER™ professional and Behavioral Financial Advisor to help better understand your options. I love to meet new people. So, follow this LINK to find a time for us to have a get-acquainted visit.

I am a financial planner who is an advocate for my clients ALL THE TIME – a fiduciary financial planner. I provide guidance based on clients’ best interests, not commissions or sales quotas. I think it’s the best way to serve clients and I am thrilled to work this way all the time.

And yes, I’m still taking on a few great families to be part of my financial planning practice.

Dunncreek Advisors does not provide legal or tax advice, nor is this article intended to do so.