Welcome to your 50s! You’re officially halfway to age 100, and you’re starting to feel like it too! I always say that when everything starts to hurt, it’s a good time to reassess your finances. This week, let’s review some of the more important considerations for those of us in our 50s.
Your 50s is a unique time for investors. For starters, you’re probably making more money than you ever have. While this is a good thing, you want to be wary of lifestyle creep. This is where your expenses start to rise with your income, and before you know it, you don’t seem to have any more disposable income now than you did when you made significantly less money. You may be experiencing a lot of family changes, such as kids graduating from college or getting married. These events may cause your expenses to fluctuate wildly for a few years. Your 50s is a time to really get a handle on your expenses so that you can maximize retirement savings, because before you know it, you’ll be facing retirement whether you are ready or not.
1. Drop the debt
Start to get rid of any debt that doesn’t serve you, meaning anything that isn’t deductible or on assets rising in value. Think credit cards, personal loans, etc. Start with the debt with the interest rate first and throw all extra money toward that debt until it’s gone. Repeat with the next highest debt. The less debt you have in retirement, the less income you’ll need to cover expenses, and that can translate to earlier retirement.
2. Max out your retirement contributions
Age 50 is a magic number for retirement savers because people aged 50 and over can now make additional contributions to their retirement plans. This applies to almost every type of retirement account. Those extra contributions can go a long way toward beefing up your retirement accounts.
3. Start to envision what you might like retirement to look like
Retirement for someone in their 50s can be 5-15 years away. That isn’t as long as you think. Start thinking about what it looks like in your mind. Where do you want to live? Do you want to travel? Play golf five days a week? How much you need to have saved for retirement is extremely dependent on how you intend to spend your time. Staying home and going out to dinner one night a week costs a lot less than taking 3-5 big trips a year and buying a second home. Have an idea of what you imagine retirement will be like for yourself, and if applicable, discuss it with your spouse. Start to align your ideal retirement dreams together, and start to build your plan based on that.
4. Review your portfolio
If you are 15 years away from retirement, I’m not too concerned about having more risk in the portfolio. If you are closer to five years out, then it is time to begin to design your portfolio to match your time horizon. As you get closer to retirement, you may consider removing several years’ worth of expenses from the stock market in order to minimize the potential effect of sequence-of-return risk. This is the risk of the markets being down the year you retire, or soon after. By creating this buffer, you give the rest of your investments time to recover so that you aren’t withdrawing money from a falling portfolio, thereby creating the effect of negative compound interest.
Your 50s can be an exciting time in your life, filled with a lot of change. Like the rest of your life up to this point, it will probably go by much faster than you expected. By following these steps, you can hopefully be better prepared heading into your future retirement.
Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. Reich Asset Management, LLC is not affiliated with Kestra IS or Kestra AS. The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation. To view form CRS, visit https://bit.ly/KF-Disclosures.
Eric is President and founder of Reich Asset Management, LLC.
