If you were wondering which decade is the trickiest time for investors, it may very well be your 50s. You’re now closer to retirement than you are far from it, and you might be thinking more and more about your future plans and how to invest in your 50’s. But how has your investing been going?
Have you been stuffing money under your mattress, afraid to invest after living through a few stock market downturns? Are your investments in safe, conservative vehicles, like CDs and treasury bonds? Or were you too aggressive with your risk taking in your younger years and are feeling unsure if you’ll be able to keep up with that level of volatility?
The good news is you still have time to invest for your retirement, and the government wants you to succeed at doing so. Yes, you read that right. There are special provisions for people in their 50s to help them catch up to their peers who have been steadily planning for retirement, or to simply continue to shore up your current plan.
Here are some things to know about investing in your 50s.
Use Catch-Up Contributions
Let’s start with the simple, good stuff. Once you turn 50, you can contribute an extra $1,000 to your IRA accounts, making the annual max $6,500. Whether or not this is taxed will depend on if you have a Roth or traditional IRA account, but the point is that you can start saving more. If you just turned 50 and don’t have any kind of savings, this is a good place for you to start. These catch-up contributions also apply to most 401(k)s and 403(b)s, but check with your provider first; if you contribute too much, you may face taxes or penalties.
Budget With Retirement in the Forefront
You’re not in your 20s anymore, which means you need to keep your retirement on your mind at all times when making big financial decisions. Are you thinking of refinancing your home? Depending on the refinancing terms, you may be paying that off into your 80s, which means that’s one more payment you’ll need to make every month while being on a fixed income.
Sit down and take a long, hard look at your budget and expenses. Where can you cut back and can that money be reallocated toward your retirement? If you are considering a home refinance, or buying a new car, can it be paid off by your target retirement date, or will you be able to afford to continue making the payments?
All of these are important questions to consider as you make your plan for the next 10 years, and beyond.
Just because you’re 50 doesn’t mean you can’t tolerate any investment risk, but you also shouldn’t be investing as though you’re fresh out of college. If you have investments already or have been playing the market over the years, look at how your money is grown and how at-risk it is to volatility. If there’s another recession, will your retirement funds be able to withstand it or recover by your target retirement date? If these questions stress you out, then it’s time to think about how and where you can reduce risk.
Consider rebalancing your portfolio to contain more treasury bonds than real estate holdings, or even CDs, which will at the very least keep your money safe and at the most earn a small interest for you.
Being in your 50s is a tricky time. You may be paying for kids in college, or even caring for your elderly parent, both of which cost money, especially if you didn’t set up 529 savings plans or if your parent wasn’t financially prepared for hardship. This can cause making ends meet to be a stressful situation, leaving you little to no time or money to think about your own retirement. However, this is the most crucial time for you to do so.
Cut back where you can, and either save or invest, depending on what your retirement strategy is. If you still can’t find a way to cut back or downsize, consider getting a part time job for a few hours a week. Even an extra $100/month in your IRA or 401(k) account is better than nothing at all.
Get a Financial Planner
You’ve probably heard more than one person encourage you to get a financial planner’s help with creating a retirement plan and that’s more true at this juncture than ever before. Since time isn’t on your side anymore, you want to make sure your money is working hard for you, and not the other way around.
The world of investments literally evolves daily, based on the markets and new investment vehicles being offered. Unless you work in the finance industry — and even then — you may not know about all of these options that are available to you, but a financial planner’s job is to be in the know for his or her clients. Talk to your friends and family to see if they have a planner they trust, or check with the company you bank with; they may have options for your too. The key is to be realistic about your finances and to make a gameplan to create your ideal retirement scenario.