Financial Focus on your 50s
Maximize your 401(k) contributions
Chances are, your 50s and 60s will be your peak earning years. It’s a perfect time to beef up your nest egg. From age 50 on, you are allowed to increase your yearly amount with a healthy ‘catch-up’ contribution. So find out the allowable contribution for your 401(k) and IRA, and feather your nest egg to the max.
Create your Social Security strategy
When to start taking social security payments? Your answer to that question can have major impact on the amount of money you receive each month. Full retirement age is currently 66, but you can begin collecting benefits as early as 62. Be aware, though, that your monthly check will be permanently reduced by up to 30% of what you would have received at full retirement age. If you can wait until you reach age 70, experts say your monthly amount rises over 75% from the early retirement payment. You will find further information on this important income source in our Social Security unit.
Deal with debt
First, take a hard look at your budget, and eliminate money-draining expenses. Then focus on reducing debt, beginning with your mortgage. Paying off your home loan may take time, but it will ultimately free you to do some serious retirement saving from then on. Next, pull out those credit cards, and choose the one with the lowest balance, adding a little extra to the principal repayment until you’ve paid it off. Keep going until you carry a zero balance on most if not all accounts.
Consider a Health Savings Account
It is estimated that a couple will face well over $250,000 in health care costs in retirement. And should a nursing home be needed, it could come with an average price tag of up to $100,000 a year. Unexpected, uncovered medical costs can do irreparable damage to retirement savings.
A solution might be long-term health insurance, which covers extended medical care such as assisted living and nursing homes. Explore this option in the “Insurance” unit in this website.
Another option is a Health Savings Account. An HSA is a tax-exempt trust or custodial account that a qualified individual can set up to pay for certain medical expenses. In addition to reducing your taxable income, your savings will grow tax-free, and after 65, any withdrawals you make for qualified medical expenses are tax-free. To see if you qualify, visit here.
Try retirement on for size
Once you have an estimate of what your monthly retirement income might be, spend no more than that amount for at least one full month. At the end of your trial run, revisit your income goal to make any adjustments you might need. (And don’t forget to factor inflation into your future plans.