Take inventory of your assets and your strategy, or you could regret it later
Reaching age 50 is a milestone that most of us celebrate. Still, after you’ve blown out the candles and bid farewell to your guests, you may have a headache from too much champagne, but otherwise feel the same as before.
Wake up! This is the time to reassess and make sure that your financial plan is in order. If you push it off until later, you may make serious mistakes that will jeopardize your future financial security.
After acknowledging this momentous birthday, Austin Frye, in Florida, invites prospective clients to a financial review. With those who have done little budgeting or saving, he’s direct.
“You have one last chance to put yourself on course to achieve a successful retirement,” Frye tells them. “It’s time to talk about saving more, spending less or both.”
Some folks listen, but others don’t. Following are 10 errors that Frye and other financial planners see 50-year-olds make that may, indeed, have serious consequences down the road.
1. Expecting to work past retirement age
First, how much time do you really have? Are you planning to work until age 65 or 70?
Think again, says Scott Stratton in Little Rock, Arkansas. Layoffs, health issues or family matters can abruptly alter expectations. A 2022 survey by the Employee Benefits Research Institute (EBRI) found that 47 percent of people retire sooner than planned.
“Lose your job in your 60s and it may be incredibly difficult to find a new one, especially with the same pay and benefits,” Stratton warns.
Likewise, Andrew Houte in Wisconsin, advises his clients to plan for an earlier retirement date. “If you work well into your 60s, it should be because you want to and not because you have to.’ ”
2. Taking too much risk — or too little
At this point, some people realize that time is running out, says Mackenzie Richards in Rhode Island. “They may do one of two things: take too much risk, often with speculative investments, or sell everything and move into cash, CDs or fixed annuities. The latter strategy could deprive them of decades of growth.” And the former could result in big losses when they can least afford them.
He recommends finding a CFP who can help you create an investment strategy based on your goals, aspirations and concerns. If you prefer to control your own portfolio, then look for a planner who will work with you to create that plan, while you manage your investments.
“This can be a cost-effective way to get a second opinion on your financial situation and prepare an investment strategy that keeps you from going to extremes,” Richards says.
3. Ignoring the 50-plus catch-up provisions
What if you are behind in your saving? Fortunately, as a 50-year-old, you can catch up.
For 2023, the IRS is allowing older savers to contribute an additional $1,000 to an IRA on top of the standard $6,500 limit. Self-employed people 50 and older with a SIMPLE IRA can add $3,500 to the $15,500 limit.
If you have an employer-sponsored plan such as a 401(k) you can max out your contributions by adding $7,500 over the $22,500 limit. “And while you are still gainfully employed, you can start a Roth IRA,” suggestsRafael Rubio in Michigan. “The contribution for this year is up to $7,500 for those 50-plus.”
Starting next year, the catch-up limits for IRAs will be indexed to inflation, meaning they will be adjusted annually in line with increases in the cost living. The same will apply to most workplace plans come 2025. The changes are part of SECURE 2.0, a federal measure passed by Congress in late 2022 that aims to make it easier for Americans to save for retirement.
4. Carrying credit card debt
Paying down debt is also essential, though many people don’t do it aggressively enough, says Christopher Lyman in Newtown, Pennsylvania. Ideally, you should work toward having no debt except your mortgage. Once other debts are paid off, and you are funding your retirement, then focus on paying down your mortgage.
“There’s nothing like being financially independent in retirement,” Lyman adds.
5. Taking on college debt
What about the kids? Arthur Ebersole in Massachusetts, sees parents take on too much debt to fund their children’s college because they did not save enough in their 529 plans. They take out home equity loans or other debt that they may be unable to pay off before retirement.
“Mortgages and college loans put a significant drag on monthly cash flow, especially for those on a fixed budget,” Ebersole says. “Instead, have your kids take loans in their names, and help them with payments as much as you can or wish to.”
Marguerita Cheng, mother of three and in Gaithersburg, Maryland, concurs. “Some parents are afraid to have the conversation with their student and school about the right financial fit. But you don’t want to compromise your own financial security.”
6. Overlooking health maintenance
At this point, if you still have not established a regular exercise habit, it’s not too late, experts agree. Investing time, energy and money in your health now will help to reduce health-related expenses later, says Sarah Carlson in Spokane, Washington. “And you’ll enjoy the journey more because you feel good.”
7. Leaving out insurance
Robust 50-year-olds may not think much about insurance. But at 60, buying a long-term care policy may prove difficult, says Benjamin Offit in Maryland “Health can worsen from 50 to 60, making a policy harder and more expensive to obtain.”
And, while people may assume they’re too old for disability insurance, their peak earning years may still be ahead. “If you were to lose your income, or have a significant reduction, would it cripple your retirement plan?” Offit asks.
Life insurance is also important, says Chen. “You don’t want loved ones to experience emotional and financial stress in the event of your untimely and premature death.”
8. Living the same lifestyle post-divorce
Divorce. It will always be the number one risk to retirement, says Stratton. Dividing assets and assuming individual expenses can be financially devastating. He urges his clients to envision their financial plan as a single person and consider how divorce will affect their long-term goals.
“Holding on to your past lifestyle and budget is a common mistake,” he says. “If you need to downsize post-divorce, do it sooner rather than later.”
9. Failing to update important documents
Do you have an estate plan, and is it current? “These plans help divide assets upon your death,“ says Rubio. “They determine who takes care of you and your estate should you become incapacitated or deceased, and who will care for your minor children.”
Because things change, Daniel Flanagan in Massachusetts, asks clients when their plan was last updated. “The frequent response is, ‘When our daughter was 2, and I was 30. Now she is 22, and I am 50.’ ”
10. Letting the market spook you
Finally, do not make the mistake of trying to time the market, warns Joshua Hargrove inTexas.
By now, you may have amassed substantial assets. But whenever the market plunges, you lose sleep. Try to filter out the noise, Hargrove advises. “People can suffer massive setbacks by making bad decisions at just the wrong time. Stick with your strategy!”