For many people, turning 50 signals a shift in the way they approach their finances. If you have kids, they're probably preparing to leave the nest and you may just be hitting your stride in terms of your earning power. With retirement looming, now's the time to amp up your efforts to save. Whether you're a late bloomer or you've been socking money away steadily over the years, here's what you can do to enjoy a rich retirement.
Find out now: How much do I need to save for retirement?
1. Leverage All of Your Savings Options
For 2016, the regular contribution limits for a 401(k) and IRA are set at $18,000 and $5,500 respectively. If you're 50 or older, however, you get a bonus in the form of catch-up contributions. That means you can funnel an extra $6,000 into your 401(k) and another $1,000 into your IRA.
In addition to these two options, you have another way to save if you have a high deductible health insurance plan. You can save up to $3,350 in a health savings account (HSA) if you have an individual plan and $6,750 if you have a family plan. Once you turn 65, you can tap this money penalty-free, although you will pay taxes on any distributions that don't go towards qualified medical expenses.
2. Be Strategic About Paying Down Debt
Carrying credit card balances, student loans or mortgage debt into retirement is a risky move, especially if you know that your income is going to go down once you've stopped working. In your 50s, it's best to focus on eliminating as many of your financial obligations as possible so you can head into your golden years with a streamlined budget.
That being said, there are some rules to follow when it comes to paying off debt. Before you begin making your monthly payments, it's important to make sure you're maxing out your retirement accounts. At this stage in life, you can't afford to delay your savings.
While you're paying down your debts, you can tackle the ones that are costing you the most first. Then you can look for ways to make your other payments less expensive. If you have credit cards, for example, transferring them to a card with a lower rate can potentially save you some money on interest. If you're thinking of refinancing your mortgage, it's best to run the numbers to get an idea of what you can save.
Check out our refinance calculator.
3. Manage Risk Carefully
If you've been fairly aggressive about investing up to this point, you may need to rethink that strategy. Someone who's in their 30s and has years to go before they retire is in a better position to rebound from a market decline than someone who's in their mid-50s.
That's why it's a good idea to take a look at your portfolio's asset allocation to see where your money is concentrated. If you're still investing heavily in stocks, now's a good time to begin easing towards more conservative investments. You may see your returns reduced slightly but the trade-off is that you'll be better insulated against market volatility.
Choose your risk profile.
Final Word
Building wealth is something just about anyone can do with enough time and the right tools. If you're in your 50s, your retirement is probably not too far away. But it's not too late to create a comfortable financial cushion for your 60s and beyond.
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