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

Retirement Time Coming Soon and Planning on Clock
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. %VIRTUAL-article-sponsoredlinks%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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Your 50s Is the Time to Get Serious About Retirement Planning

Nearly one in four people say they don't have money to contribute to retirement after all the bills are paid. It might feel that way sometimes, but if we can find the $50 to go out to dinner every Tuesday night, we can find $200 a month to put in a retirement account. Make this happen, even if you have to do it one dollar at a time over the course of the month.

And if you think putting away $50 a week won't make a difference, consider this: Contribute just $200 a month for thirty years, and if your money grows on average 8% a year, your total contributions of $72,000 will grow to almost $300,000 if put away for 30 years. When you think about it that way, skipping that regular Tuesday dinner doesn't seem so bad, does it?

This is one of the most seductive retirement lies. For a good long while, it is true that retirement is a ways off. (Even if you're 55, it's still at least ten years away.) But the longer you put off saving for retirement, the less interest you'll earn and the more difficult it will be for you to save.

An example: Alex and Jordan both put just over $90,000 in their retirement accounts over the years, but Alex began saving ($2,000 per year) at age 22, while Jordan began saving (about $3,500 per year) 20 years later at age 42. Even though they both put in the same total amount, Alex will have over twice as much money at retirement as Jordan will when they reach age sixty-seven (assumes a 6% annual rate of return). That's because her money had more time to grow, so it was able to make more off of itself than Jordan's.*

Seriously, you have two people who put the same dollar amount into their retirement funds. The one who started twenty years later contributed the same amount, but ended up with less than half as much.

As someone who cares about making my money work for me, this speaks volumes. It turns out that one of the smartest things you can do is simply to get time on your side. This is how you shortcut the hard work-by taking advantage of the power of compounding interest and the fact that you will only have an increasing number of financial obligations pulling at your purse strings as the years go by. So, this is not something you can keep putting off. This is something to tackle today. The time is now.

* Note: This is illustrative and is not reflective of guaranteed profits over time. Actual results may fluctuate based on market conditions.

I bet all the married people reading this are having a good laugh right now. Marriage does not automatically make your financial life easier. The effect of marriage on your finances depends on a host of factors: Do you both work? Do you both make enough to support yourselves? If one or both of you got laid off, could you still afford your rent or mortgage? Are you honest with each other about your spending? Do you agree on your financial goals? Will you have children? If so, do you make enough that one of you can stay home with them? Bottom line: This is an outrageous excuse, and now I am drinking wine.
I hear you. But saving for retirement versus enjoying life now is not an either/or proposition. You can do both. Also, let me put it this way: Yes, you deserve to enjoy

your money now, but you also deserve not to count pennies when you're old.

This is a case of counting chickens before they hatch. You never know what could happen to the inheritance (it could be devoured by medical bills, it could dwindle away in a financial crisis, or you may need it to pay off debts or taxes of the estate). Sure, it would be nice to inherit a windfall and be able to put it toward your retirement, but counting on doing so is not a plan-it's a gamble at best. It's far safer to plan to fund your own retirement and then enjoy your inheritance as a bonus if you do indeed receive one.
Yes, the market is unreliable from year to year, and yes, the value of your investments will dip in a down market. But downswings don't last forever, and historically, over long periods of time, the market has shown solid returns. While past performance doesn't reveal future returns, the S&P 500, for example, has averaged 9.28% annual returns over the last 25 years.

Alternatively, let's say you leave your money under your mattress or even in a savings account bearing 1% interest: You're going to lose the purchasing power of those dollars due to inflation (which is estimated at 3%). Yes, with the market, you're opening yourself up to some risk -- but with risk comes reward.

No one can predict the market. No one. So while it's true that you cannot time your investments perfectly so that they only ever go up, history has shown that if you invest regularly over decades, your investments should experience more ups than downs. So invest for the long haul, and don't fret over minor dips now. If you do, you'll be missing out on an opportunity to amass money later.
Sure, selling your home will free up lots of cash ... but then where will you live? And what if the market is down when you want to sell that home? Remember the housing crisis a few years ago? The one where tens of thousands of near retirees were left without nest eggs after the values of their homes plummeted? This is not your smartest game plan.
Yes, college is a big expense, and you should definitely save for it-that is, once your own retirement needs are taken care of. If you're a parent, it's a natural instinct to put your children's futures before your own. But think about it this way: If you don't save the full amount for your children's college education, you can always fall back on financial aid, grants, scholarships and student loans to help pay your children's way. When it comes to your retirement, however, there are no loans. Let me repeat: There are no loans. All you'll have to live on is what you've saved. For that reason, saving for retirement should be your top financial priority-always. I get that you don't want to saddle your kids or future kids with loans- what parent would?

But remember that if you pay for your children's college and then cannot afford your retirement, you will end up burdening your children all the same. They will feel obligated to help you out-at a time when their own families need them financially.

You may love your work, and it may be the kind of work you can even imagine yourself doing well into your seventies or eighties. But while that's easy to say now, what if you can't find work at that point in your life, or what if you have health problems or family obligations that prevent you from working? While there is nothing wrong with hoping for a best-case scenario, it isn't wise to plan around one. Sock away some money now so you're ready for whatever may come your way. The last thing I ever want you to deal with is a health issue and money concerns at the same time.

Reprinted from the book "Financially Fearless: The LearnVest Program for Taking Control of Your Money" by Alexa von Tobel, CFP®. Copyright 2013 by Alexa von Tobel. Published by Crown Business, an imprint of the Crown Publishing Group, a division of Random House LLC, a Penguin Random House Company.


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