As you cross the age of 50, you are stepping into the final sprint towards retirement. Your children have likely left home or are about to leave, and now is the time to focus on yourself. The next 10 years are crucial for your retirement planning and achieving your goals.
But what should you do at this stage? A part of looking ahead is evaluating your current situation. Taking a realistic look at your circumstances and envisioning where you want to be in 10 years is key to ensuring a financially secure retirement.
Whether you have been saving money all along or just starting, you need a plan. Imagine the kind of retirement life you desire. Will you work part-time, travel, volunteer, or simply relax on the beach with a book? Your future lifestyle will determine how much you need financially.
You also need to decide where you will live. If you plan to sell a large house and move to a smaller home in a city with lower living costs, your goals may differ from staying put where you are now. Sit down with your spouse and plan where you want to spend your retirement years.
Estimate your expected Social Security income, if any, and also estimate any employer-provided pensions. You will also generate income from retirement funds, such as savings and investment accounts. If you plan to work part-time, factor in expected income from that as well.
Decide when to start receiving Social Security benefits. The earlier you start, the lower the benefits. Include this amount in your overall income calculation.
Do the math; now is the time to calculate future expenses. The economy fluctuates, but having a rough budget will help determine the funds needed to maintain the lifestyle you desire.
Research the cost of living in your future retirement location. Differentiate expenses into “needs” and “wants.” Prioritize which “wants” are more important to you. Do you value having travel funds more, or do you prefer to own a beautiful house?
Once you’ve identified your needs and wants, start managing your finances.
Maximize your retirement savings contributions as much as possible. This applies to 401(k) plans, Individual Retirement Accounts (IRAs), or other types of retirement accounts. If you are over 50, you may be eligible to make catch-up contributions according to your retirement plan terms.
According to the Internal Revenue Service, the SECURE 2.0 Act (SECURE stands for “Setting Every Community Up for Retirement Enhancement”) will increase the annual contribution limits for 401(k) plans from $23,000 to $23,500 starting in 2025. The additional annual catch-up contribution limit for 401(k) plans remains at $6,500. This means you can contribute up to $31,000 annually.
For individuals aged 60 to 63, the good news is that the catch-up contribution amount has increased from $7,500 to $11,250. This means a yearly maximum contribution of $34,750 during these three years.
If you have multiple retirement accounts, consider consolidating them. Aggregate similar IRAs into one institution. This will simplify your investments and make it easier to track your assets.
If you’ve changed jobs multiple times during your career, look for old 401(k) accounts that you may have forgotten about. You might still have accounts with previous employers.
This scenario is common. According to data from retirement plan institution Capitalize, there were approximately 29.2 million abandoned 401(k) accounts in 2023, with an average balance of $56,616 per account. So, review your past workplaces, contact their human resources departments, and confirm if you have overlooked any accounts.
If you are aware of their existence, check and understand the allocation choices you made when changing jobs. Consult a tax professional to learn about the pros and cons of transferring or retaining funds.
Debt can erode your retirement savings. It’s best to eliminate debt as much as possible before leaving the workforce.
Start by paying off high-interest debt. Credit cards and personal loans can anchor your financial future. Consider using the snowball method (paying off the smallest balance first) or avalanche method (paying off the highest interest rate debt first) to eliminate debt. The sooner you are debt-free, the more funds you can allocate to retirement accounts.
While technically a debt, a mortgage typically has a lower interest rate. You may want to focus on paying off high-interest debt first before considering paying off your mortgage.
If you plan to retire before 65, when you become eligible for Medicare, budget for insurance premiums.
Consider purchasing long-term care insurance to protect your retirement funds. This can help cover costs like home care aides. Buying when you are younger can result in lower premiums. Waiting too long may lead to being denied coverage by insurance companies.
If you are 10 years away from retirement, assess your current financial situation and start planning. Calculate your income, predict future expenses, and take advantage of catch-up contributions in retirement accounts.
Lastly, make sure to pay off high-interest debt and plan for medical expenses.