Your 50s Is the Time to Get Serious About Retirement Planning

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Retirement Time Coming Soon and Planning on Clock
Shutterstock/kentoh
By Shelly K. Schwartz

So you're 50. It's better than you feared. It's better still if you're serious about your retirement savings. Indeed, pre-retirees are often positioned to fund their nest eggs as never before.

Why? One or more of your kids may be out of the house, which frees up disposable income; your take-home pay may be at its peak; and you're now eligible to supersize your savings with higher tax-deferred contribution limits.

"There's a lot you can do in your 50s to build up that war chest," said Christopher Olsen, a certified financial planner with Ameriprise Platinum Financial Services.

The Internal Revenue Service allows those over age 50 to make additional catch-up contributions of $5,500 to their 401(k), 403(b), SARSEP or governmental 457(b), above and beyond the $17,500 annual limit for all taxpayers. Married couples who filed jointly and are both older than 50 may put a combined $11,000 extra into their accounts.

Those with a traditional Individual Retirement Account may contribute an extra $1,000 ($2,000 for married filers) beyond the standard $5,500 annual limit ($11,000 for married filers), but you may not be able to deduct all of your contribution if you also participate in a retirement plan at work.

Additionally, those with a Savings Incentive Match Plan for Employees IRA or SIMPLE 401(k) plan may contribute an extra $2,500 a year. Married filers over age 50 may contribute an extra $5,000.

Higher Tax Bracket, Bigger Benefit

"If you're married and you and your spouse both make catch-up contributions to your 401(k)s or IRAs, you can save a good chunk of money," Olsen said.

For example, assuming you start catch-up contributions to your 401(k) at age 50, with an 8 percent annual rate of return,
you would have amassed a savings of $667,661 by age 65. By comparison, if you make only the standard $17,500 contribution per year starting at age 50, you would have $508,003-about $160,000 less.

Another upside to being 50 and at the top of your earnings game is that your contributions to a tax-deferred account will likely benefit you more now than they did when you were 20, says certified financial planner Ken Waltzer, founder and president of Kenfield Capital Strategies.

"Many of my clients in their 50s are in the highest tax rate, which makes retirement saving even more attractive," he said, noting independent contractors and small-business owners can significantly reduce their taxable income.

Self-employed individuals and small-business owners over age 50, for example, who defer the maximum $57,500 per year to their Solo 401(k) ($17,500 in employee contributions, $5,500 for catch-up contributions, and $34,500 in employer contributions) can save $20,125 in federal taxes, he said.

Sidestepping Landmines

When you reach your 50s, of course, there are plenty of financial landmines that could dent your savings. You may, for example, find yourself part of the "sandwich generation," providing often costly care to aging parents while still supporting your children.

A recent MetLife study found the proportion of adult children providing personal care and/or financial assistance to a parent has more than tripled over the past 15 years, with a quarter of adult children, mainly baby boomers, providing care to a parent.

For those age 50 and older who leave the labor force early to care for an aging parent, the cost of providing that care averages $303,880 when you factor in lost wages, lost Social Security benefits and the negative impact on pensions, according to the study.

That's some serious coin.

Your Parents' Finances, Plans

Thus, it's important to talk openly with your parents about their financial position and plans, said Matthew Saneholtz, a certified financial planner with Tobias Financial Advisors.

"Be sure your parents have an estate plan in place and long-term care coverage, or at least a picture of their final stages of life, because it might affect you," he said. "If you know your parents don't have the money to pay for care on their own, are you willing to use your own savings to help them? Will they rely on Medicaid? Will you take care of them in your own home? These are questions you need to think about, as they could become your dependents."

On the other end of the spectrum, a frank financial discussion with your parents is equally important if you expect to receive an inheritance, Saneholtz said. They may share details about the estate they plan to leave behind, including gifts to charity, which will impact you. Just be sure you continue to save for yourself.

"You don't want to put too much weight in any inheritance you expect to receive," Saneholtz said. "Anything can happen. There are so many different variables, and documents can be changed at the last minute."

Your Portfolio

As you prepare for retirement, consider, too, how your money is invested, said Olsen at Ameriprise.
On paper, you may appear to have all the money you need, but if your portfolio consists primarily of real estate, your ability to cover living expenses after the paychecks come to a halt may be compromised.

"A lot of retirement savers don't seem to get that if you have $200,000 in your IRA and a paid-off house that's worth $800,000, you're not positioned as well as someone else who has the same net worth but $500,000 in their investment account," Olsen said.
He noted that a large home with higher property taxes, homeowner's insurance, maintenance and utility bills can also drain your savings faster.

Now is also the time to determine with greater precision whether your savings are sufficient to meet your long-term needs. The disciplined few who are on track to meet their financial goals can breathe easy, continuing to feather their nest egg while planning ahead for their on-time retirement.

Olsen says one of his 50-something clients is so well prepared that he need only achieve a 5 percent average annual rate of return during his retirement years to maintain his standard of living. Statistically, though, you're more likely to have undersaved.

A 2013 survey by TD Ameritrade (AMTD) found the average baby boomer has saved $200,000 for retirement but believes he or she will need a median of $750,000 to retire comfortably. That's a huge shortfall. If you're among those who have not saved enough, it's time to make some tough choices.

That may mean downsizing your vision for retirement, selling your home to minimize fixed expenses, working longer or adopting a more aggressive stance with your investment portfolio.

As you look ahead to your golden years, says Saneholtz, it's also important to ensure your home, health, life and auto insurance coverage is sufficient to protect your savings and your family in the event of an unexpected medical emergency or legal claim.

The most important thing to remember, though, is that it's never too late to save.

"Many in their 50s have more money coming in and less going out, which could equal more funds available for savings," Saneholtz said. "With retirement coming in your 60s, you need to review everything to make sure you are taking advantage of all employee benefit programs as well as tax-savings strategies."


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bobktmfs

It really is better to get planning earlier, but sometimes that just doesn't happen. I know! Your car breaks down, there go your savings for the month. You have a medical emergency or an emergency in your family, there may go savings for several months. But the sooner you can get planning, the better off you will be. Go to http://www.mutualfundstore.com/planning-and-retirement to learn more about your various options because there are quite a few. Good luck!

April 24 2014 at 1:39 AM Report abuse rate up rate down Reply
Matthew Ferguson

I think 50 is the right time to plan for retirement because at this point of your life your take-home pay is at its peak and you'll have less expenses. This is the right time to make the right investments such as long term care insurance because of lower premiums. If you put this off, you might face high premiums or worse your application may be denied due to old age and poor health. It's important to consider things like this as early as now or else you'll end up using your entire nest age and becoming a burden to your family. Nobody wants to become a burden and that's why you should consider buying ltc insurance early. In exchange for about $1000 to $8,000 annually, you can receive coverage on any form of long term care. Those who are interested in buying ltc policy should start researching now and feel free to use the resources listed below.

http://www.npr.org/2012/05/08/151970188/long-term-care-insurance-who-needs-it

http://longtermcare.gov/costs-how-to-pay/what-is-long-term-care-insurance/

http://www.ltcoptions.com/long-term-care-insurance/what-is-long-term-care-insurance/

March 18 2014 at 12:06 AM Report abuse rate up rate down Reply
SPQR

The last figure I saw was 1.2 million in savings to retire unless you have a great pension, such as a state, some unions, big business and governement worker. Of course that depends on your the job you held the average for SS workers nearing retirement is around $100K and they will receive 55K plus for a pension not including their medical, bonus payout and savings. None of the people making min wage or just over that will ever retire unless they go back to their villages where they came from. Look forward to millions of homeless and starving people. Beef will be the least of their worries. Fresh Salmon is around 22 dollars a pound including skin etc. Farm raised salmon had red dye in the food..ground up everything , they are fed or they would not even look like salmon. Most fish except Tilapia and catfish are scarce. Tilapia which feed on algae in which human feces is used to feed the algae mostly now from China. Tilapia is still running aroud $8.00 a pound. Get use to just eating beans, and exotic grains because that is all that will be left. The price of milk is already up in some states. Wait till you get your next gas heating bill! you won't be eating!~ The US is doing great !

February 21 2014 at 4:39 PM Report abuse rate up rate down Reply
SPQR

You forgot that almost no one can afford a $800 K home, that home will sell for about 450 k if at all. People were stupid for buying big expensive homes. Home builders should not be allowed to build those expensive homes. Just because women want 5 bedrooms, granite toilet seats and bath tubs, along with hardwood everything does not make it the right move.
stop buying and maybe you can save some then plan on moving to ALabama for retirement or Guatemala where all the illegals are coming from

February 21 2014 at 12:40 PM Report abuse +2 rate up rate down Reply
alfredschrader

It's hard to what is good for everybody.But some things not to do for retirement :Taking risks, investing in coins, precious metals, lotto tickets, stock tips, horsetrack racing, land deals, a relative's restaurant business idea, venture capital, collectibles of any kind including cars and motor homes, buying swamp land, etcetera.
Some thing to invest in: Things that improve your health - best electric toothbrush, teeth cleanings every 3 months - why ? Poor dental health causes a myriad of health issues - one major operation and your savings could be wiped out.
Regular exercise like bike riding, walking, or a fitness routine is good, not necessarily to extend your life though that is importantant, but to keep you out of the emergency room or off the operating table both of which could reduce you to a pauper.
Pay off everything especially your house and your vehicle(s).

Plan it all in advance, don't wait until the last minute. Talk to people that have done well in retirement. Research communities especially in Florida where the weather is mild especially on the West Coast of Florida and the cost of living is reasonable.

February 21 2014 at 11:59 AM Report abuse +1 rate up rate down Reply