As individuals reach their 50s, many Americans experience a peak earning decade. Yet, despite increased earnings, financial security is not always guaranteed. Challenges facing this age group include higher living costs, growing debt, the decline of pension funds, and a heavier reliance on Social Security. According to a 2019 study by the Center for Financial Services Innovation, only 17% of adults aged 50 and above in the low-to-moderate income bracket are considered “financially healthy.”
To safeguard one’s financial future, it is essential to understand how to prepare for retirement in your 50s, recognize common financial mistakes made during this period, and learn how to avoid them with insights from financial planners.
1. Not being intentional with investments and tax planning
Marianne M. Nolte, CFP and founder of Imagine Financial Services, highlights the importance of knowing one’s financial numbers. Many individuals tend to guess their budget, which is insufficient for retirement planning. Not being deliberate about investments and tax plans can lead to uncertainty about financial stability in the future.
Lamont Brown, MBA, CFP, principal wealth advisor of ALNA Financial, emphasizes the need for focused investment strategies in one’s 50s. Whether opting for aggressive or conservative investments, individuals must align their choices with their risk tolerance and long-term goals.
2. Failing to take advantage of maximums and catch-up contributions
One common mistake observed by Brown is the failure to increase retirement savings during the 50s. This crucial period can significantly impact one’s retirement goals, making it essential to maximize contributions to attain financial security.
Individuals in their 50s have the option to contribute larger amounts to retirement accounts, such as 401(k) plans and traditional or Roth IRAs. Taking advantage of catch-up contributions can enhance future financial stability.
3. Falling victim to lifestyle creep
Brown cautions against lifestyle inflation in the 50s, where increased earnings may lead to unnecessary expenses like larger homes and luxury cars. Prioritizing savings over extravagant spending is crucial for long-term financial health.
4. Withdrawing retirement savings too early
Nolte advises against premature withdrawals from retirement accounts, especially concerning Social Security benefits. Waiting to claim benefits until full retirement age can significantly increase financial security in the long run.
Early withdrawals from retirement funds, such as Roth IRAs, can incur penalties and limit the benefits of compound interest. It is advisable to maintain savings for as long as possible to support retirement goals effectively.
Reducing work hours instead of fully retiring can also help prevent early withdrawals and sustain retirement funds.
5. Having an out-of-date estate plan
Updating estate plans regularly is crucial for individuals in their 50s to align with changing family dynamics and financial goals. Ensuring beneficiaries, legal documents, and asset distribution reflect current circumstances can prevent probate issues in the future.
Creating a detailed contact list for survivors and key estate management professionals can streamline the estate settlement process.
6. Not investing in disability insurance
Brown highlights the significance of disability insurance for those in their 50s to mitigate financial risks associated with potential injuries or health conditions. Securing private short- and long-term disability coverage can safeguard long-term financial plans and prevent medical debt.
7. Delaying or overlooking long-term care insurance
Considering the likelihood of requiring long-term care services as one ages, Brown suggests exploring long-term care insurance options in the 50s. Obtaining coverage before costs become prohibitive in the 60s can safeguard against substantial future expenses.
