I’m a Financial Advisor: These Are the 6 Biggest Money Mistakes People Make in Their 50s
Financial planning is important at all stages of your adult life, but it’s doubly so once you reach your 50s. It’s around this point where many people start thinking more seriously about retirement. But it’s also at this time in your life when your financial situation is likely still in flux.
Check Out: Ramit Sethi: Track These 4 Numbers To Become a Millionaire
Learn More: 4 Genius Things All Wealthy People Do With Their Money
You might still be paying for your adult children’s college education or you might be on the tail end of paying off your mortgage or other debts. You may even be taking care of your elderly parents — either financially or otherwise.
Whatever you’re doing, it’s important to prioritize your own financial well-being, too. After all, you’ve done a lot in life up to this point and you deserve the peace of mind that comes with knowing you’ve done everything right and can meet the next phase of your life head-on — without any major financial stressors.
Unfortunately, a lot of people make money mistakes in their 50s that can either set them back temporarily or have greater repercussions on their overall financial stability. GOBankingRates spoke with Carla Adams and Sherry Finkel Murphy, two financial advisors, about the most common financial mistakes people make during this time.
Spend When They Should Save
Anyone can overspend, but those in their 50s should be particularly careful about doing so. After all, every dollar counts as you approach retirement age. Even if you feel like you have a ton of spare cash, that doesn’t mean you should be spending it.
“More often than not, when people reach their 50s they are earning more money than they ever have before. Certainly, you should enjoy your hard-earned money, but you also need to keep in mind that the money may not last forever,” said Carla Adams, founder and financial advisor at Ametrine Wealth.
If you spend too much money in your 50s, you could end up hurting yourself financially later. As a general rule of thumb, you’ll need roughly 80% of the income you earned while working to sustain your lifestyle in retirement. Having more doesn’t hurt though — after all, things you might not expect can come up.
Plus, if you get used to spending more in your 50s and something happens to your current job, it could be even harder to adjust.
“When you are earning more than you ever have, it can be very difficult to find another job that will pay you as much as you had been making, or it may at least take you more time to find an attractive job offer,” Adams said. “Strive to find a balance between enjoying your income and prudently saving.”
Read More: ‘Rich Dad’ Robert Kiyosaki Reveals Why the 401(k) Is a ‘Horrible’ Retirement Plan
Underestimating Their Longevity
People often underestimate just how long their retirement will last, and so they don’t plan enough financially for that.
“Rather than thinking about life expectancy, people should seriously consider the possibility that they will live into their 90s, or even beyond. If you plan your retirement spending with the idea that you will live until your life expectancy, there is a 50% chance that you will live beyond that age!” Adams said.
People often live 30 or more years during retirement, which is why people in their 50s should view their finances in the long term.
As Sherry Finkel Murphy, CFP, ChFC and RICP at Madrina Molly, LLC, put it, it’s important to understand “that we’re going to live much longer than we realize and that we will need to plan for, not just the go-go years of retirement, but for years of frailty risk and care needs in later retirement. This includes planning for the cost of home renovation to include accommodations and for increased services [and] the cost of managing chronic diseases or reversing years of failing to attend to our health.”
One way to avoid making this mistake is to make a model that provides an estimate of how long your current savings will last — including planned and unplanned expenses. Try to make it to where your savings will get you to the age of 99. That way, you’ll have plenty of money for your own retirement years — and even something to pass down to your loved ones.
Lending Too Much
As you get older and have more resources, you might feel inclined to help others financially. And while you can be generous with your money to an extent, it’s easy to overdo it.
“We all love our kids, want the best for them and want to help them out. Whether it’s paying for college or helping them afford their first apartment out of college, it is very tempting to provide financial support to your kids after they leave the nest,” Adams said. “However, most people do NOT want their kids to have to financially support THEM in their old age, so it is incredibly important to put yourself, your retirement nest egg first.”
There are still ways you can help your loved ones without jeopardizing your own future financial security. For example, you can let your kids take out student loans to cover their college education. Then, when you’re in a more financially stable position, you can always help them pay some of those loans back.
This has the added benefit of teaching your children a bit about financial independence.
“Allowing your adult children to have too much financial dependency on you will make it harder for them to learn to live within their own means,” Adams said. “Letting your kids struggle a little in their 20s will help them grow into financially independent people.”
Not Taking Advantage of Social Security
The longer you work and the more money you earn, the higher your Social Security benefit. For many people in their 50s, especially those thinking about early retirement, it’s all too easy to underestimate the true cost of retiring — and to miss out on a higher Social Security benefit amount.
“Our 50s are usually our highest-grossing decade. Our benefit will reflect that. If you’re a high earner, you should be counting on those years to be averaged into your benefit (which accounts for the highest 35 years of income),” Murphy said.
“While some professionals experience burnout, we should be thinking about continuous reinvention and NOT early retirement,” Murphy continued. “We are going to live long enough to want the guaranteed income of Social Security to cover some of our fixed expenses.”
For those who want a job with fewer responsibilities, that’s still an option, too. By continuing to work — even at a slightly easier job — you can continue paying into the Social Security system and increase your benefits amount when you actually retire.
Being Too Conservative With Investments
Many people in their 50s switch over to a more conservative investment portfolio. And while this might work for some, it can be a mistake for others.
“People in their 50s see retirement on the horizon and may get more fearful of potential market downturns and may feel it’s time to move their portfolio to be more conservative,” Adams said. “While there is nothing wrong with going more conservative as you age, you don’t want to go OVERLY conservative. If you still have 10+ years until you plan to retire then you want to continue getting decent growth out of your portfolio.”
Becoming a Caregiver (When It’s Not Absolutely Necessary)
If your parents are still around by the time you reach your 50s, you might find yourself in a position where you need to take care of them. This isn’t a mistake — but failing to factor in how much this is actually going to cost you and your own financial needs is.
“1 in 5 of us is called out of the workforce for part-time caregiving. We need to plan in our 50s in case we are needed by our parents. And we need to plan for if and how we will help them financially, else it will undermine our own retirement,” Murphy said.
“Caregivers experience loss of income, savings, and professional reputation. We all need a hedge. Anyone who has the risk of becoming a caregiver should understand how that care will be funded, ask for accommodations in their employment, [and] consider funds that go to family a fixed expense,” Murphy said. “At the same time, we need to be careful that our financial assistance doesn’t inadvertently disqualify loved ones from benefits.”
More From GOBankingRates
This article originally appeared on GOBankingRates.com: I’m a Financial Advisor: These Are the 6 Biggest Money Mistakes People Make in Their 50s
