Making the Most of your 50s and 60s: 7 Retirement Planning Tips
Picture yourself at 90 and work backward from there
Even if you’ve landed in your 50s (or 60s) in solid financial shape, now is the time to conduct a thorough check-up. Here’s how to make sure you transition to a financially secure retirement:
1. Calculate your income from savings. After years of saving in 401(k)s and IRAs, the time has come to see how much monthly income you can count on. There are good, free “retirement income calculators” that will tally savings, Social Security and pension, if you have one, and spit out an annual retirement income. The best calculators expect you to live to 90 or 95.
If you like what you see, congrats! If you’re coming up a bit short – most people are – you have time to make adjustments.
Don’t want to navigate on your own? Work with a financial advisor. Word-of-mouth recommendations are good. Just be double sure to ask: “Are you a fiduciary?” You only want to hear yes, and get it in writing. A fiduciary puts your needs above all. Other advisors aren’t held to that important standard. Don’t compromise.
2. Find more money to save. Look at your spending. Lifestyle creep takes hold at this stage of life. A car may be a necessity. Maybe two. But did you spend the absolute least you could on a car? If you’re leasing, the answer is no. If you’re spending $500 a month on a loan – the average for new car deals – the answer is no. A less expensive car could free up $100 to $200 (or more) a month.
If you’re open to downsizing in the future, think about doing it now. Pocket a capital gain that plumps up your retirement savings. Lower your monthly expenses.
How about a part-time job? Uber on the weekends, a freelance gig in your field? Since this is extra income, earmark 100% (after tax) for retirement savings.
3. Check out a Roth 401(k). Once you turn 50, the federal government encourages you to play retirement “catch-up.” In 2019, anyone 50 or older can save $25,000 in a 401(k), $6,000 more than your younger office mates. Contact HR to increase your contribution.
And ask if the plan offers a Roth 401(k) option. Every penny you pull out of a traditional 401(k) is taxed as ordinary income. Money from a Roth 401(k) is 100% tax-free. There’s a tradeoff. Contributions you make now aren’t deducted from your taxable income. You’re using pay that has already been taxed to save, and in retirement there’s no tax bill.
There is no income limit on who can contribute to a Roth 401(k). By switching your new contributions to a Roth 401(k) you will be giving yourself some valuable “tax diversification” in retirement: Not all your withdrawals will raise your taxable income.
4. Avoid the college trap. If you still have college-bound kids, taking out loans or slowing down your savings in order to cut tuition checks is a mistake. There are no loans for retirement; 15 or 20 years from now, your kids will be glad you saved more and haven’t grown financially dependent on them.
As a family, strategize your child’s options: a dream school (if financial aid makes it affordable); great second-choice schools that will be so eager to have your child enroll they’ll kick in a solid aid package; state schools with low in-state tuition. A year or two of community college before transferring to finish off a degree?
5. A work-longer plan. Working longer brings in more income and delays withdrawals from savings. Also, studies show later-in-life work at a job you enjoy has social and psychological advantages.
But you need to put effort into making it happen. At your current job, look around: Any 65-plus people there? That’s important intel. Retaining your value requires burnishing skills and engaging with younger workers (likely including the boss). Employers don’t is accommodate burn-outs or those with stale skills.
6. Think about 90. Today’s 65-year-olds have a 50% probability of still being alive at 88 (women) and 85.5 (men). We don’t naturally think about our older selves, so push yourself to envision your 90th or 95th birthday. Now work backward. What financial choices might you make today to help you land at that milestone without worry? Moving more, eating better today might just make you a happier and healthier 90-something.
7. Wait until 70. Unless you have a health condition you expect to shorten your life, delaying when you start taking Social Security is crucial. At age 62, your benefit will be about 76% less than starting at 70. More guaranteed income from Social Security will help you afford life into your 90s.
If married, the highest earner should delay until 70. You’ll ensure whoever lives longer will have the largest benefit possible. When a spouse dies, the survivor can collect just one benefit – either hers or her spouse’s.
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