Common advice says that it’s important to start planning for retirement as soon as possible. While you may have opened a retirement savings account in your 20s or 30s, it doesn’t mean your plan should be on autopilot until the day you leave work for good. There are important steps to take in your 50s, too, to ensure you’re on track for your golden years.
Retirement at Any Age: Get Top Retirement Tips for Every Stage of Life
Find Out: 7 Surprisingly Easy Ways To Reach Your Retirement Goals
Prioritize Your Retirement
As you get closer to retirement age, it’s important to prioritize a comfortable retirement above other financial goals. This often means spending less in other areas.
For example, one of the largest expenses for people in their 50s is their children’s college education, according to Julia Vanzler, managing director, senior wealth advisor Wealth Management & Trust at SVB Private. “It is a wonderful gift to be able to help pay for college, but it’s important to remember that students can borrow money for school, there are no loans for retirement,” she said. Save for retirement first, then determine if there are excess savings that can go toward other things, such as college expenses.
Here’s some more information about saving for retirement and preparing for the costs that come with it:
People ages 50 and older have the opportunity to save more in their employer savings plan and possibly make up for lost time, said John Campbell, east region head of wealth planning for U.S. Bank. For example, the contribution limit for a 401(k) in 2022 is $20,500, but workers ages 50 and up can add an additional $6,500 for a total of $27,000 each year. If you have an IRA, you can make a catch-up contribution of $1,000 on top of the $6,000 annual limit.
Further, Campbell said it’s important to take advantage of your company match. “This has two benefits: You’re saving more for retirement and you’re reducing your taxable income.” An employer match is free money that can help bridge the gap between what you’ve saved and what you need to retire, so be sure to contribute at least enough to get the full match.
Here’s some more investing information:
Put Your Savings To Work
Vanzler said that for many workers, their peak earning years are in their 50s. That can present a great opportunity to increase savings. “Be cognizant of what you are spending on fixed vs. discretionary expenses, and set a goal to save more each month,” she said.
Additionally, be targeted about how those savings are allocated. If you wanted to divide up your savings into different goals, Campbell suggests this: Allocate at least 50% to retirement investments, 10% to 25% to paying down variable-rate debt and 10% to 25% to home repair savings.
Take Our Poll: Do You Think You Will Be Able To Retire at Age 65?
Max Out Your Health Savings Account (HSA)
Your 401(k) or IRA isn’t the only savings vehicle available for retirement. If you have a high-deductible health plan, you’re eligible to put money into an HSA. This account offers triple tax savings that can help in retirement. Your contributions can be made pretax, you don’t have to pay taxes on the earnings and you can withdraw the money tax-free now or in retirement to pay for qualified medical expenses.
Plus, after age 65, you can use the money in your account for nonmedical expenses without any penalties. However, you do have to pay income taxes on any non-qualified withdrawals. Campbell noted that an HSA is also portable, as the account goes with you if you change jobs.
Anticipate the Need for Long-Term Care
At some point in your retirement, you may no longer be able to fully care for yourself on your own. It’s a situation no one likes to think about, but one that should be planned for. “The costs of long-term care have skyrocketed in recent years, leaving much of the aging population unprepared to fund care or age at home,” said Andy Freedman, vice president of marketing and experience at Assured Allies. In fact, the average cost of a semi-private nursing home room is now over $93,000, and home health aides are upwards of $50,000.
Freedman said that investing in long-term care (LTC) insurance can save you thousands of dollars in the future. “When planning for retirement, be sure to expect the unexpected and factor in these costs,” he said. “It’s also important to fully understand the nuances of LTC insurance and whether you’d qualify.”
Have a Plan for Income Taxes
Campbell noted that many people focus on accumulation planning (saving) for retirement, but many neglect distribution planning. As in, the taxes you will have to pay when you take your money out.
“Think about tax-diversified sources of income, like after-tax accounts,” he said. For example, a Roth IRA allows you to contribute after-tax dollars, which then grow tax-free and can also be withdrawn tax-free. This is a good place to keep high-growth investments that would otherwise result in a large tax bill in retirement. Roth IRAs do come with income limitations, but there may be ways around them, such as a “backdoor Roth IRA.” It’s always a good idea to speak with a financial advisor about the best tax strategy for your retirement investments.
Here’s more information about taxes in retirement:
Look Into Life Insurance
Finally, Campbell recommends taking out a permanent life insurance policy. Unlike term life insurance, a permanent policy (such as whole life, universal life or variable life) protects you for your entire lifetime and also has a cash value component. That means your loved ones are not only protected financially if you die, but you have interest-bearing funds that you can leverage while you’re still alive.
Life insurance rates generally go up with the age of the applicant. So the earlier you can secure a policy, the less you’ll pay in premiums.
More From GOBankingRates
This article originally appeared on GOBankingRates.com: Your Complete Guide to Retirement Planning in Your 50s