Just Getting Started
In your 50s, your income may be at its peak, although you still have hefty expenses. Once you’re 50 consider taking advantage of “catch-up” rules that allow you to contribute more money to IRAs and certain retirement plans. Also, trim your loan and credit card payments as much as possible, to keep your debt load low in retirement. And rough out the amount you expect to spend each year in retirement.
- Take a fresh look at your retirement goals
Your 50s are a great time to start focusing on what you’d like your retirement life to be. (These retirement goals may be quite different from what they were in your 30s.) Write down your current goals, noting the age you want to retire, where, and what you plan to do in retirement.
- Pay off your mortgage faster
Look for ways you’ll be free of your mortgage by retirement, so you won’t have this albatross of an expense around your neck when you stop working full time. You might start making biweekly mortgage payments, which will retire the loan faster and cut your total interest cost. Or you can just add a little extra to each month’s mortgage payment. Talk with your mortgage lender about how to prepay the loan.
- Rough out your retirement expenses
Since you’re getting close to retirement, it’s a good time to begin estimating how much you’ll spend then. The Wells Fargo Expenses and Income Needs list can help.
- Estimate how many years you’ll be retired
Women need to save more for retirement than men, since women live longer, on average. As a rule of thumb, given today’s longevity statistics, try to have enough in savings to last for 30 years or more.
- Take advantage of IRS catch-up rules to save more
Once you’re in your 50s, the IRS lets you contribute an additional "catch-up" amount to a tax-deferred IRA and 401(k). For IRAs, this means you can contribute $6,500 ($1,000 above the standard limit) in 2014; for 401(k)s, you can put in $23,000, a full $5,500 more than the standard limit in 2014.
- Create a suitable investment mix
In your 50s, you’ll want to balance your need for risk with your need for security. By utilizing a suitable asset allocation strategy and dividing your dollars among a variety of investments, you can decrease the likelihood that all the investments in your portfolio decline at the same time. Of course, by the same token, it’s also unlikely that every investment in your portfolio would go up at the same time. Bear in mind that although asset allocation can help diversify your portfolio, it does not protect against fluctuating prices or uncertain returns.
- Create a suitable retirement income plan
Now that retirement is approaching, it’s a good time to devise a plan that will provide you with enough income in retirement to cover your expenses. A retirement income plan will tell you where your money will be coming from (such as Social Security, pension, savings plans, and investments) and how much you’ll get annually.
- Work with a financial advisor
A financial advisor can help you plot a strategy and take advantage of the best ways to save for retirement.
Catey Hill is money editor for the New York Daily News online and author of SHOO, Jimmy Choo!