When you reach your 50s, it becomes a difficult time to save money for retirement. If you’ve set a retirement savings goal and haven’t followed through on it, you should pay it a careful review. (Working with a financial advisor can help you get back on track.)
Once you’ve reacquainted yourself with the financial destination you want to reach, take the following steps during the remainder of your pre-retirement period to ensure you get there.
The first item to consider is your previous savings and investments. Hopefully, you’re consistently stashing away money and making maximum contributions to your 401(k) plan, IRA, or other account.
How much is enough? It depends on your lifestyle and expenses, potential medical costs, and the type of support you get from pension plans and social security.
When reviewing your savings goals, be careful not to set the bar too low. Use our retirement savings calculator to get a better idea of how much you need to save.
If you need help, contact an expert. Consider talking to a paid financial advisor who can make sure you’re on the right track.
One of the obstacles to saving for retirement is having debt. One of the big debt hurdles to clear before you turn 50 is your mortgage.
Mortgage burn parties were once a fun way to celebrate the accomplishment of owning a home, free and clear. But that rite of passage is becoming less common. In fact, according to a study by American Financing, 44% of homeowners between the ages of 60 and 70 take out a mortgage after retirement.
If you don’t have to pay a mortgage, you can focus on saving and investing in the stock market. Paying off your home may take longer, but it’s worth it in the long run.
3. Leverage catch-up donations
If you didn’t make retirement savings a priority early in life, it’s never too late to make up for it. Once you turn 50, you can begin making additional contributions (called catch-up contributions) to your tax-protected retirement account.
In 2024, young workers can only contribute $23,000 to a 401(k) and $7,000 to an IRA. However, Americans age 50 and older can contribute up to $30,500 to a 401(k) and $8,000 to an IRA.
When an emergency occurs, you may end up dipping into your retirement savings (especially if you don’t have enough money set aside for emergencies). Keep in mind that tapping into a 401(k) or IRA before age 59 1/2 is expensive. There are exceptions, but in most cases there is a 10% penalty for early withdrawals.
4. Create a health savings account
Another important step is to prepare for unexpected medical expenses. Large medical bills can quickly deplete a lifetime’s savings.
Fidelity Investments estimates in 2024 that a couple in their mid-60s will need $330,000 to cover their retirement health costs. Additionally, extended care in a nursing home is extremely expensive. According to a Genworth Financial report, the median annual cost for a semi-private nursing home room in 2023 was $104,028. With that in mind, retirement planning should factor in future medical expenses.
One option is long-term care insurance, which pays for extended care such as nursing and assisted living. If you have a high-deductible health plan (HDHP), you should also consider opening a health savings account (HSA). This reduces your taxable income. The savings you can invest will grow tax-free. Once you turn 65, you can withdraw without paying penalties or taxes (your savings are taxed only if you use the money to pay for non-qualified medical expenses).
Before choosing an account, look for features that work best for you, such as low fees and low minimum balance requirements.
5. Make the most of your Social Security benefits
Technically, you can start enrolling in Social Security at age 62. But once you turn 50, it’s okay to start thinking about a plan to collect your benefits. You can use Bankrate’s Social Security calculator to estimate your benefit amount.
Experts say most people receive Social Security too early. That’s wrong. Delaying your retirement doesn’t just potentially increase your income; It also affects the amount of your monthly benefit check. Elijah Kobar, co-founder of Great Waters Financial in Minneapolis, said taking Social Security at age 70 instead of 62 increases your monthly benefit by about 76%.
If you’re married and have a lot of income, Kovar says it’s also a good idea to wait to collect Social Security. If one spouse outlives the other, the surviving spouse keeps more Social Security benefits. By letting high-income earners wait to claim benefits, they get even more money in retirement.
Another important consideration when deciding when to take Social Security is your tax situation. Kovar says that from a tax perspective, it’s the best source of income outside of a Roth IRA. Maximizing your Social Security benefits also involves implementing strategies to lower the amount of your taxable income, such as donating assets to charity.
6. Generate income beyond investment
Your investments will likely provide a source of income during your retirement. However, in addition to your portfolio and retirement savings, you should consider other ways to increase your income, such as taking on a side hustle.
A 2024 Bankrate study found that 36% of Americans earn extra income from a side hustle. If you’re behind on saving for retirement, you can earn extra income by working as a freelancer or consultant. It is also less risky than alternative routes such as purchasing an annuity.
7. Don’t abandon stocks in your portfolio
As you approach retirement, you’ll want to gradually shift your investment portfolio to safer investments such as bonds and bonds. However, it’s important to remember that if you’re in your 50s, you may still have a decade or more until retirement, so you don’t have to give up stocks completely.
Stocks typically have higher growth potential than bond investments, allowing your portfolio to grow and outpace inflation. Even after you reach retirement, you may want to keep a certain percentage of your portfolio in stocks to make it last. A time horizon of 10 years or more allows you to recover from temporary losses that may arise due to stock market fluctuations.
A financial advisor will work with you to determine the best strategy for your retirement portfolio.
