If you’re in your 50s, it’s time to get serious about retirement planning. In just a few years, you’ll need to make some major decisions about the next chapter in your life, and having a financial cushion into place can give you more options.
You may be looking forward to quitting your job, cutting back on your hours or continuing a career you enjoy. In any case, it makes sense to construct a financial road map from where you are now to where you would like to be at age 62, 65 or 70.
It also means taking a look at the financial challenges and risks you need to consider as you prepare for retirement. A knowledgeable financial adviser can help you with this process, since there is no “one size-fits-all” solution for everyone.
One of the first steps in developing your retirement readiness strategy is examining your current lifestyle. How much income are you making each month, and how does that compare with your spending and saving patterns?
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If you’re over 50, you should seriously consider cutting back on your optional spending and shifting those dollars into your savings and investment accounts. For instance, instead of dining out twice a week at $100 a dinner, you could enjoy a home-cooked meal instead. That step alone could free up more than $850 a month or $10,000 a year toward your retirement fund.
If you are still making monthly payments on a mortgage, vehicle or student loan, you could increase your payments and pay off the balance more rapidly. Even though interest rates on these types of loans remain low, it’s a great feeling to plan for retirement knowing that you have paid off those outstanding debts.
Credit card debt can be an even more worrisome problem. The best solution is to pay off the balance each month to avoid fees and interest charges. But if that’s not possible, try to make each a payment as large as possible to start bringing down the balance.
After reviewing those liabilities, make a list of your assets as well. That might include the equity in your home, your bank accounts, investments, income-producing properties and other personal possessions. Hopefully, your assets will more than outweigh your debts, giving you a positive net worth.
Once you have a clear picture of your current finances, you can start looking ahead to the next 10 to 15 years. Will your earnings be likely to grow, stay the same or decline in the future? If you’re expecting a raise, a bonus or a share of your company’s profits, plan to put that money into your retirement funds, rather than spending it right away.
You should also review the status of your pension, or defined contribution plan, such as a 401(k), IRA, or SEP-IRA. If the balance in your plan isn’t as large as you like, you may be able to make “catch-up” contributions as you get closer to retirement.
Now is a good time to take a close look at your investment portfolio. Putting most of your money in growth assets like stocks makes sense early in a career. But in your 50s, you may want to shift allocate more funds to bonds or other assets to reduce the impact of an unexpected market downturn.
If you own a business or are a shareholder in a professional firm, now is the time to think about potential exit strategies. Because these are relatively illiquid assets, it may take several years to put a plan into motion and free up those funds for retirement. Even if you plan to work indefinitely, your priorities could change due to an illness, injury or family issue. So, you should also consider your options when it comes to health, life and disability insurance.
Along with planning for retirement, many 50-somethings are juggling other financial priorities, such as planning for college expenses. If your son or daughter is still in high school, you could consider lower-cost educational options rather than a more expensive private university.
Your high school student may be eligible for scholarships and financial aid, which can significantly reduce your out-of-pocket costs. If your child is already in college, you are probably looking forward to making that last tuition payment. However, a part-time job or a work-study position might provide your student with modest source of income for the next academic year.
While helping their children, many people in their 50s are also providing financial support for their aging parents. That can lead to a difficult balancing act when there are multiple demands on a limited stream of income.
Regardless of your current financial status, take the time to think about retirement. It will be here sooner than you think.
Andrew Menachem, CIMA®, is a Wealth Adviser at The Menachem Group at Morgan Stanley in Aventura. Views expressed are those of the author, not necessarily Morgan Stanley, and are not a solicitation to buy or sell any security. The strategies and/or investments referenced may not be suitable for all investors. Follow Menachem on Twitter @AMenachemMS