What You Need to Know About Money at the Age of 50 and 60

So you have a decent sized poultry house , your debts are paid, and your estate is more or less in order . You are nearing the finish line of retirement.

This is the fourth article in the latest TwoCents series, What You Need to Know About Money at Any Age . Check out our other articles on what you should know before the 20 years of that , how to manage their money in age from 20 to 30 years and financial steps to be taken between the ages of 30 to 40 years , as well as follow the advice about what to do in retirement.

So let’s not waste any more time – you have the money to make the most of your profit.

Play catch-up

When you turn 50, you can start making additional contributions to your retirement accounts. This means you can add an extra $ 6,000 to your 401 (k) this year and $ 1,000 to your IRA or Roth. Small business owners, contractors, and those with freelance income can potentially save $ 61,000 on a custom 401 (k) program (although keep in mind that the $ 61,000 limit applies to all of your 401 (k) accounts annually) … And additional investments can become a life line for many people.

If your children are not at home and the house may even be paid for (or almost fully paid for), you can channel some of this additional savings into your retirement accounts. According to Forbes’ David Ray, even that extra $ 1,000 in an IRA can make a significant difference if you contribute between $ 50 and $ 67 each year:

5% Annual Return: $ 26,000.

7% Annual Return: $ 31,000

10% annual yield: $ 41,000.

So how much is enough? “If you haven’t planned to retire with a finance professional, what are you waiting for?” asks Monica Dwyer, a certified financial planner from Ohio. “Don’t wait until you’re ready to fill out retirement paperwork before you get a qualified, professional look at your plan.”

To get a rough estimate of your position, Dwyer says you need to start working with realistic numbers. Here is the formula she suggests to use to test yourself:

Total income

Minus any contributions to retirement accounts

Minus any expenses that go away (like garage parking fees that you won’t pay in retirement)

Plus any additional expenses that you will have after retirement (for example, will you eat more often in restaurants or travel more?)

Fewer taxes (estimate high because taxes are likely to rise rather than decrease)

Total. If this amount is far from the budget you lived on, ask yourself why

And then you will see where you can improve.

Assess your investment mix

Roger Whitney, a certified financial planner and host of the Retirement Answer Man podcast, says your 50 is a critical time to prepare for retirement. Check the box to see the combination of tax categories for your investments: before tax, after tax, and without tax.

“I have found that many people keep almost all of their savings in a pre-tax account, which makes them less flexible in paying their pensions,” Whitney says. “If you are, consider building up savings after taxes and tax-free savings so you have more flexibility after retirement.”

This includes Roth . Consider Roth backdoor conversion if you are making too much money to contribute directly. If you accept qualified withdrawals (meaning the account has been open for at least five years and you are 59 1/2 or more), then your taxes will not be affected upon retirement, which can be a useful strategy. Again, talk to a trusted person to find out what to do in your specific situation.

Go to safer harbors

“People with a shorter-term investment horizon should consider rethinking their investment portfolios and overall asset allocation,” says Roy Tavor, CEO of Nummo.com , a personal finance management platform. “Depending on the specific situation, this may be the right time to reallocate some of the equity investments to the Treasury or bond investments.” Especially with a potential trade war on the horizon and rising inflation.

Kevin Ta, Senior Strategy Management prosperity in the PNC Wealth Management , echoed Tavor, advising those who are close to retirement, to invest in one or two sessions with a financial planner to determine what’s best for them and their families.

“Generally speaking, it may be prudent to mitigate portfolio risk by moving away from stocks to more conservative bonds,” says Ta. “As we expect interest rates to rise, investors may want to consider the benefits of shorter-term bonds.”

You can model what-if scenarios with your advisor “to compare and contrast different portfolio allocations and their risks,” he adds.

Say no to your kids

Parent PLUS Credits may seem like a good idea if your child needs help funding his college education, but they can damage your financial well-being. PLUS loans have higher interest rates than other loans, fewer repayment options and loan origination fees , and parents usually borrow more than students. In the event of a default, your tax refunds and Social Security payments may be seized to recover them. Money Magazine suggests borrowing no more than you can repay over 10 years or until retirement, whichever comes first.

“Applying for financial aid is always a great option for students who make college much cheaper and are always considering a subsidized loan and unsubsidized student loan before considering a PLUS loan,” says Charlie Javis, Founder and CEO of FRANK , a site that helps students with financial assistance. This CNBC article has information on some of the other alternatives.

Likewise, while you can help a child pay for a wedding or a down payment on a house, think about your financial situation first.

(Mom and Dad, if you’re reading this … ignore this advice.)

Protect yourself in the worst case

While the divorce rate among young couples is declining, the so-called gray divorce rate is actually on the rise, according to the Pew Research Center. “Among US adults aged 50 and over, the divorce rate has roughly doubled since the 1990s.” If this happens to you and your spouse, you don’t want to be caught off guard and you want to take care of it in the most painless way possible.

“A divorce can be financially disruptive, as well as the added cost of supporting two families,” says Dwyer.

Any family property acquired during your marriage, including 401 (k) s, pensions, home equity, stock option plans, IRAs, and bank accounts will be split and you will have to deal with a bunch of legal bills. You see how this can ruin your retirement plan.

Transferring assets like an IRA is not an easy task. This needs to be done correctly, and fixing errors can be time consuming and expensive.

Name your assets

You’ve already made a will, but Dwyer says many people don’t take ownership of their assets properly.

“If they have a bank or brokerage account, they can add beneficiaries to that account, a so-called ‘transfer at death’, which works the same way as adding beneficiaries to an IRA or retirement plan,” says Dwyer. “Remember that assigning a recipient to these accounts will take precedence over your wishes, so check them every year to make sure they still meet your goals.” You can read more about the transmission of death symbols here .

According to Dwyer, ownership of your assets is a better option than a will for several reasons: it allows you to avoid a will (that is, money will not go through the court system before it finally gets to your beneficiaries), as is most of the money remains private in the funds, and this is a faster and cheaper transfer.

In addition, “if you do not specify who you would like to act on your behalf with regard to the will,” Dwyer says, “the courts will appoint someone, and it may not be the person you would choose.”

Think about when you will receive social security

“You can qualify for Social Security as early as 62,” says Leanna Johannes, Senior Wealth Management Strategy Specialist at PNC Wealth Management. But “if a person thinks they’ll live to be 83 or 84, financially it’s better to postpone receiving social security until they’re 70, because the payments — both monthly and over time — will be higher.” …

However, this is not an option for everyone. A new study published in the Journal of Aging Studies shows that people who start asking for benefits at 62 (as early as possible) don’t regret it. This will ultimately be a matter for your spouse to consider, considering your retirement plans and how much you have saved on retirement accounts, equity, etc.

Confirm your housing plans

Whether it’s downsizing, increasing in size, or moving to a more sunny area, you need to think about where you want to live in retirement and what the implications are.

If you are planning to retire soon, downsizing may not be a financially feasible option, as you might think. Stocks are low now and prices are high; seniors are competing with first-time homebuyers for affordable, smaller homes. Johannes says retirees can find it difficult to find an institution to give them a mortgage if they don’t already have a long-standing relationship with that bank or lender.

One thing to watch out for: closing costs . Peter Lazaroff, a certified financial planner, told CNBC he is seeing more retirees withdraw money from their retirement savings to pay closings, fees and relocation costs. But this allocation can put you in a higher tax bracket, leading to a large tax bill and no noticeable downsizing savings. Make sure you start the process with your eyes open.

Alternatively, you may decide to stay in your current home and pay off your mortgage as soon as possible. You can try refinancing or speeding up your pre-retirement payments so that you have one less withdrawal from your retirement savings each month. “You can refinance your mortgage for 15 years or just make additional payments on your current mortgage,” suggests Kiplinger .

You will pay the equivalent of 13 monthly payments instead of 12, dividing the payment by 12 and adding that amount to each monthly bill. Or you can simply pay the year-end surcharge. With a 30-year mortgage, an annual additional monthly payment will shorten the term of your loan by about four years.

If you are thinking about moving somewhere cheaper after retirement but haven’t stopped there yet, there are a number of resources to help you make your decision. If you live on a fixed income, check out GoBankingRate’s list of the best places to live. Likewise, Money publishes an annual list based on taxes, housing costs, activities, continuing education opportunities, and more.

Get rid of your belongings

And one of the most important things to control when you’re thinking about downsizing or moving to a new place (or heck, stay in the same house): get rid of your belongings.

If you’re a little hoarder or just having a hard time parting with your belongings, try a heritage-based approach to your belongings, as outlined in Lauren H. Gilbert’s new book Stories We Leave Behind (because remember, no matter how much your things mean to you, nobody else needs them ):

Meet at mom’s around 8 for donuts and coffee. Memories, laughter, tears, even more laughter (perhaps in the background 80s dance music). Examine rooms, wardrobes and shelves. Pause to smile or laugh at some trinket found here or a special book found there. Decide what to keep, throw away, or donate. Angela (firstborn) will create the list. Go to lunch. Made. Okay, there will be time to box stuff, arrange for loading and probably mops, but the tricky part – determining what was there and making distribution decisions – it was done in a warm, supportive, about noon experience with its positives reaffirming and hopeful memories; before they got shiny and grumpy.

As Gilbert says to Next Avenue , tackling downsizing in this way is less about getting rid of waste than “accepting what you want to leave behind”. Your family will be grateful to you.

“When I looked at my belongings through this new lens, I found many boxes in my closet with a lot of things that I was holding onto. For example, my school theater – continues Gilbert. “And I thought to myself,“ If I only have three or five topics in my life, what would I like them to be? »Is this one of the main topics that I want my family to know? “The answer was no. My theatrical work began to distract. “

Get ready to enjoy your vacation

As you approach retirement, you’ve spent decades pondering your money and how to make it work for you. “But have you thought about how to spend your time?” asks Jolene Workman, vice president of director of retirement and financial solutions. “Be sure to talk to your family about what retirement will look like as you step into this exciting new chapter.”

This can mean traveling, acquiring a new hobby, doubling down on an old hobby, working part-time, volunteering, spending more time with your grandchildren – the options are endless. You don’t have to plan everything – retirement is relaxing after all – but don’t underestimate how much free time you now have.

And we’re almost at the end of our What You Need to Know About Money at Any Age series . Are you ready for retirement? Be aware of.


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