Retirement planning in your 50s

You might want to travel, continue working full or part time at something you enjoy (yep, that’s possible in retirement), spend more time with family, RV across America, learn how to sail, teach yoga or meditation, live overseas as an expat or…? A smart retirement plan will help you to choose your own future.

There is a growing awareness about the concept of FIRE when it comes to retirement. This stands for Financial Independence. Retire Early. It is a financial movement defined by living simply with extreme savings and investment. 

If you have crossed the 50-year-old line, this concept will likely make you feel a little bit late and a dollar short, as the saying goes. That’s okay - no worries. 

It’s not for everyone but the idea of focusing on savings and investments is really appropriate for those in their 50s. This is especially important if you haven’t done much in this area yet. Another area to consider is thinking about continuing to earn money as you head toward retirement.

Advances in internet technology have made it possible for you to start an online business and keep at it as long as you like. The ability to add to your pension and make money in retirement is another good way to look ahead. 

Let’s get strategic with where you are 

For now, let’s look at the smart things to start doing with where you are and what you have. There are steps you can take now to help ensure you have an enjoyable and comfortable retirement.

There are many families who do not save enough money when preparing for retirement. Some reports state that over 72% do not save enough for retirement each month.

In addition, a survey done by Bankrate.com states 36% of people in the United States have absolutely NOTHING saved for retirement.

Once you’re in your 50s and the end of full-time work is no longer a distant concept, it’s a good time to get serious about planning for the next chapter of life.

Whether you intend to entirely leave the workforce at some point or keep a foot in it, there are things you can do now to better prepare yourself financially.

Here are eight ares of retirement planning that are important to focus on in your 50s and 60s:

Sometimes people don’t really know how to assess their future needs and don’t want to talk about it. It can be hard to confront. But it’s important that you know there are opportunities at this age to really move the needle on your retirement planning.

Smart retirement planning requires a fresh look at your portfolio

Have you taken the time to evaluate your retirement savings? If you haven’t yet checked out how they are split between different levels of risk, now is a good time to revisit your portfolio.

Two things become more important as you enter your 50s. It’s a critical time to consider your risk tolerance: how concerned you are about the value of your investments going up and down at this stage of your life. You also need to determine when you anticipate taking distributions from your savings.

Have you found yourself spending too much time focused on the markets and business news and losing sleep because of it? Are you worried a sharp and/or sustained downturn would deplete your savings at the very time you need it the most? If this rings true for you, your investment strategy may be too aggressive.

While everyone wants to ride a bull market and rapidly increase their savings, no one knows for certain when the bull will turn into a bear - or worse.

There are small steps you can take today to move some assets from riskier investments to more conservatives ones. Then it pays to look for opportunities when the market is going higher to sell some long-held and uncertain holdings. 

When and how to take money from your portfolio

People in their 50s also need to take a closer look at what they expect to spend from their portfolio each year in retirement.

One rule of thumb is to have a minimum of five years of your anticipated distributions outside of the stock market, especially if that transition is coming up in the next 10 years.

Savings are a critical part of retirement planning

A number of research efforts suggest many 50-somethings are not well prepared for their golden years.

Vanguard’s How America Saves report is a good example that shows the median (defined as half below/half above) of 401K retirement account balances for people aged 55 to 64 stood at $61,739 in 2018. The median was $40,243 for the 45-54 age group.

While a family's overall financial situation may include home equity and different workplace savings plans as well, these are still less than ideal numbers.

Whatever amount you’ve saved will be combined with other sources of income — e.g. Social Security — and stretch across the years of your retirement.

The good news is that your 50s are an ideal time to turn the notch up on your savings.

This is the point where, if you are fortunate, you may be in your peak earning years and your expenses may be declining if you’re empty nesters. If there is still a gap between what you’ve saved and what you need, you’ve likely got another 10 or 15 years to fill it.

Tax opportunities for age 50 plus

You are allowed to start putting more tax-advantaged money in retirement accounts once you reach age 50.

While the contribution limit for employee-sponsored 401(k) plans is $19,500 for 2020, workers age 50 and older are allowed to add an extra $6,500 in their accounts under the so-called catch-up rule. This is an increase of $500 in both areas.

That’s a total of $26,000 you can put away, as long as your company allows the catch-up contributions (most do). This applies to both traditional and Roth 401(k) plans.

The rules are less generous for individual retirement accounts. Both traditional and Roth IRAs have contribution limits of $6,000, with an extra $1,000 allowed per year once you reach age 50. Be aware, though, that while traditional IRA contributions come with no annual income limits, Roth IRAs do.

Of course, finding extra money to funnel into those retirement accounts often means changing your spending habits or recalibrating your family budget. It pays to take a close look at where your money is going to help identify extra cash.

Credit card debt can cripple your retirement planning

Let’s zero in on the main financial issue for most families. Credit card debt is a huge issue for many families. It’s a pure cost and for many it can be debilitating.

Are you in your 50s and still holding on to substantial credit card debt? Are you continuing to use your credit card excessively? Don’t pass go and don’t collect $200 (Monopoly game reference - you got this, right?) until you get this paid down as soon as possible.

Paying little or nothing extra to pay down your credit card debt is a big barrier to being able to save for your retirement.

The average interest rate on credit cards is above 17%, with many banks using any blemish on your payment record to jump you up to 10 points higher. It also won’t take much of a bump in the federal reserve rate for this average to slowly move into the 20%interest rate range.

By comparison, the average rate on a 30-year fixed mortgage is below 4% and a five-year loan for a new car comes with an interest rate between 4.8 to 5.6%.

Credit card debt also comes with zero potential tax benefit, unlike other areas like mortgage interest and student loan interest.

The bottom line is that credit card balances are typically much more expensive than other forms of debt.

There’s nothing wrong with taking vacations, getting a manicure and hitting the links on the weekend as long as you don’t always use a credit card to pay for it.

Then again, it’s perfectly okay to use your credit card if you are willing to pay off your purchases within the monthly no-interest charge window. The truth is few people are actually able or willing to take this important step.

If clearing your debt on a monthly basis is hard for you to do, consider using your debit card more often or even pay cash when doing so is possible. Retirement is not too far away and you don’t want to keep paying this huge interest rate.

Your future self will thank you if you take the steps needed to get your credit card debt under control today. 

Take a close look at healthcare issues and opportunities in your retirement planning

You may qualify for health savings account (HSA) tax advantages

Are you among the growing number of Americans with a high-deductible health plan? If yes, the health savings account that comes with those plans is a way to put away extra tax-advantaged money for retirement.

If you end up not needing it to pay for current health costs, it can deliver a triple tax benefit: It’s pretax, grows tax-free and is generally untaxed at withdrawal as long as it is used for qualified medical expenses.

Key Points: 

• A health savings account (HSA) lets you set aside pretax income to cover health care costs that your insurance doesn't pay.
• You can contribute to an HSA only if you have a high-deductible health plan (HDHP) and aren't enrolled in Medicare.
• For 2020, the maximum contribution amounts are $3,550 for individuals (up $50 from 2019) and $7,000 for family coverage. If you're 55 or older, you can add up to $1,000 more as a "catch-up" contribution.
• HSAs have no use-it-or-lose-it provision. Any funds still in the plan at the end of the year can be rolled over indefinitely.

While many people assume they’ll just keep working full-time long past the average retirement age of about 63, health issues can interfere with those plans as you age.

In fact, research from Fidelity Investments shows the average 65-year-old couple today will spend $285,000 on health care over the remainder of their lives. 

Learn about the pluses and minuses of Medicare as you do your retirement planning

While you get to sign up for standard Medicare in a window around your 65th birthday, it doesn’t cover some medical needs in later life, including dental, vision and most long-term or extended care.

There are a number of “Medicare Part B '' private insurers who offer add-on plans for some or all of these health care areas. These plans can substantially increase your monthly payment over and above your standard Medicare cost.

Another area you should consider learning more about is the cost of pharmaceutical drug coverage. Most current estimates by the government state that pharmaceutical drugs comprise around 18% of total healthcare costs - and that number is rising.

The Centers for Medicare and Medicaid Services projects spending for retail prescription drugs over the next decade will be the fastest-growing health care category and will consistently outpace that of other health care spending.

Some of the Medicare Part B insurer options will cover a portion of drug costs, but there are categories of drugs with different financial rules and there can be additional monthly costs and deductibles involved. You also have the option of purchasing a separate Medicare Part D drug plan.

When it comes to Medicare and other retirement insurance, it definitely pays to do your research well ahead of time. 

Long-term care insurance considerations

Speaking of long-term care, when you reach your 50s, it’s a good time to think about how you’ll pay for it down the road.

Someone turning age 65 today has nearly a 70% chance of needing some form of long-term care in their remaining years. According to the Department of Health and Human Services, on average, women need care longer (3.7 years) than men (2.2 years).

If you don’t want to rely on family members or spend down your assets — and you are above the income threshold to qualify for Medicaid — insurance for long-term care can be an option.

While some people turn to policies that exclusively cover those costs, there also are hybrid options that combine life insurance with long-term care coverage.

Social Security is a critical element of any retirement planning 

Now is a good time to learn how to maximize your Social Security benefits so you know how to plan for the retirement you desire. Social Security is a critical part of most people’s retirement income and there are many complex rules and opportunities that aren’t promoted widely.

Key Points:

• To qualify for Social Security retirement benefits, workers must be at least 62 and have paid into the system for 10 years or more. Most people in their 50’s in 2020 will qualify for what is called “full retirement age” (FRA) between 66 and 67 based on incremental increases based on your birthdate.
• Workers who wait to collect Social Security, up to age 70, will receive higher monthly benefits.
• Spouses and ex-spouses may also be eligible for benefits, based on their former partner's earnings record.
• Deciding on the ideal Social Security strategy for you is a personal decision - don’t assume your best friend’s strategy is best for you.
• It’s possible Social Security representatives may give you incorrect advice that can cost you serious money.
• There are opportunities to increase your Social Security benefits later if you decide that you started claiming too early.
• Be proactive. Social Security won't tell you if you become eligible for specific benefits, such as those for divorced survivors and children.

Here are some issues and opportunities that you should review and consider as you look forward to getting Social security benefits. There are many others, so it can pay to get professional financial guidance on the best strategies for you and your family. 

Don’t Take the SSA’s Advice at Face Value

The Social Security Administration (SSA) representative you talk to might have good intentions when they offer advice. However, some of these overworked individuals may give you incorrect information that may cost you down the road.

If you discover the mistake later, you might not be able to correct it, even if it stems from faulty advice from the SSA. This is the SSA’s stated rule on the topic. And many claiming decisions can’t be changed.

If you do ask the SSA for advice, you’d be wise to also consult with at least one financial advisor who specializes in retirement planning to get a complete picture of your options.

You Can Withdraw Your Social Security Application

If you’re within the first 12 months of claiming and you have enough cash available, you can withdraw your application and repay all the benefits you’ve received so far.

If you do, then it is like you never claimed in the first place.

Lots of people file for Social Security without fully understanding the consequences. For example, many people choose to claim Social Security before full retirement age, but later wish they had not done so.

After repaying what you received, you can claim a tax refund or credit for any taxes you paid on those benefits.

Suspend Your Social Security Benefits

Let’s say you chose to get early retirement benefits at age 64 and don’t need the money now after all. Once you reach full retirement age, you can voluntarily suspend your Social Security benefits.

Doing so will boost your future benefits—and you don’t need to repay the benefits you’ve already received.

Let’s say you file to voluntarily suspend your benefits at your full retirement age 66 (“full retirement” can be different for different birth dates). For each month of suspension, you will earn delayed retirement credits worth 2/3 of 1% per month—or 8% per year.

Maximize Your Household Benefits

If you have a spouse or minor children, you should consider how your claiming strategy affects them. This might mean using a different benefit strategy than the one you’d use to maximize your own benefit payment.

Your claiming decision affects family members. If you voluntarily suspend your own benefits, no one else can receive Social Security benefits based on your earnings record.

How else might you maximize your household’s Social Security benefits? The usual advice is to postpone claiming until age 70 if you can afford to. But that may not be the best option if you’re in your 60s and still have minor children at home. This is not uncommon in blended families.

In this scenario, you might receive more benefits in the long run by claiming at a younger age so you can receive dependent benefits.

The dependent child benefit is equal to half of the claiming parent’s full retirement benefit, even if the parent claims early. The younger spouse may also be eligible for a spousal benefit. These additional benefits may offset the lower benefit you receive by filing early.

Again, you can see that your specific family situation will factor into determining the best path forward. Get professional advice - it could add thousands of dollars over your lifetime. 

Know Every Benefit You’re Entitled To

The Social Security Administration doesn’t just pay retirement benefits directly to the worker who earned them. It also pays survivor benefits, divorced survivor benefits, spousal benefits, divorced spousal benefits, child benefits, and a few other types of benefits.

But Social Security doesn’t always inform individuals when they become eligible for these benefits. That means you could miss out on benefits if you aren’t proactive.

Here’s an important item that impacted me personally. The survivor/widow/widower's benefit and the worker’s benefit are treated as two separate benefits.

A person who lost their spouse before retirement may have the opportunity to receive a survivor benefit first, then switch to their own retirement benefit later, or vice versa.

If one is still working and the worker benefit after deferral credits will exceed the survivor benefit, one can claim the survivor benefit at full retirement age and switch to the worker benefit at 70.

The Bottom Line

Social Security benefits are an essential part of any retirement plan. You’re entitled to them if you or your spouse have earned 40 credits by paying into the system for at least 10 years. You should absolutely try to max out your payback within the law’s parameters.

That’s why it’s essential to educate yourself about the available benefits and filing strategies. Work out the various scenarios with a financial planner and an approved Social Security calculator before actually filing.

With this knowledge, you’ll be able to claim your benefits in a way that’s most likely to provide the maximum return for you and your household.

Having an online business in retirement can change your life 

• Find the right niche
• Create the right content perfect for your audience
• Build trust over time
• Make certain your ultimate product or service meets your audience’s need

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