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A significant birthday can lead you to take stock—and take action, research has found. In this series of stories, you’ll see how to apply that newfound motivation to your finances at age 50, 60, and 65.
By the time you reach age 50, you’ve likely got a lot going on financially. Retirement is still a ways off, but not so far away that you can ignore it. You’re approaching your peak earning years, or just past them.
Your kids may be heading to college (hello, tuition bills), or be on the cusp of starting adult life on their own (sorry, the bills may not end there). Your parents may need your help too, while your own future care is a looming worry.
In one critical way at least, it’s an ideal stage in your financial life: Though you’re being pulled in several directions financially, you still have plenty of time to make crucial course corrections.
To set yourself up for this rewarding decade, tackle these seven tasks before you turn 51.
1. Grab the chance to save more
At age 50, retirement savers get a special break from Uncle Sam: Catch-up provisions kick in that allow you to put more cash into your tax-advantaged retirement accounts.
This year, you can sock away an extra $6,000 in an employer-sponsored account like a 401(k), for a total of $24,500 (rising to $25,000 in 2019), and an extra $1,000 in an IRA, for a maximum of $6,500 ($7,000 next year).
Don’t let the opportunity pass you by. “You’re in your top earning years,” says Kristi Sillivan, a financial planner in Denver. “Your goal should absolutely be to put the IRS maximum away.”
And you may need the power savings from now to the finish line. A Center for Retirement Research analysis found that a typical household headed by a worker aged 45 to 54 has only about $100,000 save for retirement. That’s not nearly enough to give you financial security for life once you retire.
But if you start maxing out your workplace plan now, you can seriously make up for lost time.
Save the limit for workers under 50 in your 401(k) starting now, and you’ll have $682,000 for retirement by age 65, assuming you’re starting with the typical $100,000 and earn 6% a year. Taking full advantage of catch-up provisions will give you another $140,000, for a grand total of $822,000 in 15 years.
2. Plot out a debt pay-off plan
Do you still have a mortgage? College loans? Credit card balances? A rising number of people are approaching retirement with outstanding loans: According to a study by the Employee Benefits Research Institute, 77% of households led by someone age 55 to 64 still carry some form of debt.
“Come retirement, your income most likely will drop, and your debt payments don’t drop with your income,” says Michael Tanney, a financial planner in New York City.
“You still have enough time to line yourself up nicely so by the time you get close to your retirement goal you could be debt free and live comfortably off your retirement savings,” he says.
Create a payment schedule to be debt-free before you quit working. If you have many years left on a 30-year mortgage, for instance, that might mean refinancing into a 15-year loan. Although current average rates of around 4% are higher than a year ago, they’re still low by historical standards.
Or, if you’re more burdened by credit cards or student loans, use an online tool or app to help you figure out the best repayment approach. The budgeting app Mint, for example, offers tools to help you pay off credit cards and other loans, as does the free app Unbury.me.
3. Start cutting the cord with your kids
Of course, your debt load may be a drag due to your kids’ college. An analysis last year by Experian found that 50- to 70-year-olds have an average of $36,000 in outstanding student loan balances, second only to the nearly $40,000 that Gen-Xers still owe on average.
Whether your kids are about to go to school, currently enrolled, or recent grads still on the family payroll, now’s the time to make sure you aren’t putting your retirement at risk by throwing too much money toward school or support.
“Parents will do anything for their children,” says Tanney. “A vast number of people out there have borrowed against something they own to pay for college for their children. It’s a huge issue.”
Map out your expected expenses for your children and the length of time they’ll be on your balance sheet. The goal: To keep yourself on track for retirement, pinpoint the date at which you can drop those costs and double down your savings efforts.
4. Gather up stray retirement accounts
By now, you and your spouse have likely worked at a number of jobs. If that’s left you with orphaned 401(k)s or other employer retirement accounts floating about, this is a good time to combine all of them into a single plan, says Peter Creedon, a financial planner in Mt. Sinai, N.Y.
While leaving your workplace plan intact when you leave a job can make sense in certain circumstances, merging small accounts allows you to more easily track what you have and settle on a proper investment mix. A single bigger balance might also let you lower the investment fees you pay.
You can consolidate your retirement plans into one IRA or, depending on your company’s rules, roll an old account into your current workplace plan.
5. Revisit your plan for the what-ifs
Hopefully you drafted a will when you started having kids, and maybe even drew up legal documents naming the people you want to manage your money or make medical decisions on your behalf, if you’re no longer able to do so yourself.
But have you updated your will, financial and healthcare powers of attorney, and medical directives since then? If not, now’s the time.
“Whomever you designated as your durable power of attorney 15 years ago, you may not even be in touch with anymore,” Sullivan says. Make sure the people you’re naming to manage your money, healthcare decisions, and estate still make sense.
This also may be the right time to revisit who should get your money. The beneficiaries you name on accounts such as your life insurance policy and retirement plans trump your will. So be sure they’re up to date too.
6. Review your life insurance needs
If you bought term life insurance when your first or second child was born—the most inexpensive and efficient way to insure yourself when you’re young—you may be nearing the end of a 20-year policy.
Even if your kids are grown, do you need continued coverage, say to cover student loans or the balance on a mortgage if you die prematurely? What other expenses might your spouse struggle to cover in the coming years?
“If you were to pass away tomorrow, how much does it cost to continue whatever is happening?” Tanney says. “You can calculate the number with very good precision.”
If you find you still need life insurance, you can try to renew your term policy, but you’ll encounter higher rates at 50, and health problems might disqualify you.
Another option at this stage of life is permanent life insurance, such as whole life or a universal life policy, which also lets you leave a legacy for heirs or money to charity. If you go this route, check your term policy—it may be convertible to permanent coverage.
7. Start talking about long-term care
Right now, you’re still probably in good enough health to buy a long-term care insurance policy with reasonable premiums (rates rise more sharply past 60, and health problems can rule out insurance altogether the longer you wait). But whether you eventually buy insurance or not, the key step now is to have a conversation about it with your family.
Are you hoping your children will care for you when you need help? Are you planning to move into a graduated-care facility later in life? Do you already own a life insurance policy with a long-term care or chronic illness rider that will help cover expenses?
“People who are 50 are starting to do that stuff for their parents, so it’s top of mind,” Sullivan says.
