It is generally easier to get where you want to go when you have a road map (or GPS!). A financial plan serves this function when making decisions of how to set priorities for your financial future. Each individual has their own timeline, but we have identified some of the key financial decisions people may face in each decade of their life and the considerations that go along with them.
Key Financial Goals for your 50’s
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1. Increase savings and max out retirement accounts
As you move closer to retirement, you need to ramp up your retirement savings. If you have been saving 10% of your earnings up to this point, you may need to increase this amount to 20%. You also should contribute to your Roth IRA and 401(k) accounts to the maximum limit. In 2013, if you are over 50 you are allowed extra “catch-up” contributions to both your retirement plan and IRAs. For 401(k)s (not including SIMPLE plans), the catch-up amount for 2013 is $5,500, raising the total contribution limit to $23,000. For Traditional and Roth IRAs, the catch-up amount is $1,000, bringing the maximum contribution to $6,500.
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Consider using an online retirement calculator or meeting with a financial advisor to see if you are on track to meet your retirement savings goals. A financial advisor can help you budget and reshuffle your portfolio if you need an extra boost to your savings in order to retire on time.
2. Pay off your mortgage
For many people, mortgage payments are one of the largest essential expenses. Making mortgage payments into retirement will put a huge strain on your savings. Therefore, set a goal to have your mortgage paid off by the time you retire.
3. Begin planning more concretely for retirement
Up to this point in your life, it is likely that you have been planning for retirement in an abstract way, trying to save as much as you can in hopes of maintaining your current lifestyle in retirement. Now that you are nearing retirement age, you should begin asking yourself concrete questions about life after retirement.
Where will you live? Will you sell your home and move? Selling your home can be a big payoff, and downsizing your house and moving to a less expensive location can dramatically lower your cost of living. This is an option to consider if you are looking for ways to stretch your retirement nest egg.
How will you spend your time, and how much will it cost? Many people see retirement as an opportunity to travel the world and try new things. If this is your dream, you need to consider travel expenses when setting savings goals. Similarly, if you enjoy expensive past times, such as golf or skiing, you need to think about how much money you will need to continue engaging in these activities throughout retirement.
Do you have long-term-care coverage, or will you need to set aside money to cover future health care costs? As stated above, many companies do not offer lifetime health benefits and Medicare will not cover all your health care costs. The Center for Retirement Research at Boston College estimates the typical couple at age 65 will need about $197,000 to cover out-of-pocket medical costs. For your own health and peace of mind, it is essential that you save enough to cover your future medical expenses.
4. Review your will
As your estate grows during your prime earning years, you want to be sure that it will be passed to the next generation based on your terms. At this point, you most likely have a written will, but it may be advantageous to review it with your financial advisor and revise it with your attorney, if needed. Make sure that the conditions for the transfer of your estate are clear and agreeable to you and work with a financial advisor to make sure that you are taking the proper avenues to reduce taxes.
5. Take advantage of discounts
If you are 50 or over, you are eligible for discounts on insurance, travel, entertainment, shopping and more through AARP. Take advantage of these deals, as they can help you boost your savings and reduce costs during retirement.
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