As you enter your 50s, it’s crucial to prioritize saving for retirement. If you’ve set a retirement savings goal but haven’t been actively working towards it, now is the time to reassess and make necessary adjustments. Seeking guidance from a financial advisor can help you realign your financial goals.
Once you’ve reaffirmed your retirement savings target, follow these steps in the years leading up to retirement to ensure you reach your financial goals.
1. Establish Realistic Goals
Start by evaluating your current savings and investments. Ideally, you’ve been consistently saving money, maximizing contributions to retirement accounts like 401(k) plans and IRAs. Consider factors such as your lifestyle, expenses, potential medical costs, and expected income from sources like pension plans and Social Security when setting your savings goals. Utilize a retirement calculator to estimate the amount you need to save.
If you need assistance, consider consulting with a fee-only financial advisor to ensure you’re on track.
2. Address Debt
Debt can hinder your ability to save for retirement. By age 50, focus on paying off significant debts, such as your mortgage. While becoming mortgage-free may take time, it allows you to redirect funds towards savings and investments.
3. Maximize Contributions
If you’ve fallen behind on saving for retirement, take advantage of catch-up contributions available to individuals aged 50 and above. Boost your contributions to tax-sheltered retirement accounts like 401(k)s and IRAs to accelerate your savings.
While unforeseen circumstances may necessitate tapping into your retirement savings, be mindful of potential penalties for early withdrawals before age 59 1/2.
4. Establish a Health Savings Account
Prepare for unexpected medical expenses by setting up a health savings account (HSA). An HSA allows you to save for medical costs tax-free, providing financial security for healthcare needs in retirement.
Additionally, consider long-term care insurance to cover extended medical care expenses.
5. Optimize Social Security Benefits
Delaying Social Security benefits can significantly increase your monthly benefit amount. Utilize resources like Bankrate’s Social Security calculator to strategize the best time to start collecting benefits.
Maximizing Social Security benefits involves careful planning and consideration of factors like taxation and spousal benefits.
6. Diversify Income Streams
Explore additional sources of income beyond investments, such as freelance work or consulting. Generating supplementary income can bolster your financial stability in retirement.
7. Maintain a Balanced Portfolio
While nearing retirement, gradually shift your investment portfolio towards more conservative assets. However, don’t completely abandon stocks, as they offer growth potential and can help combat inflation.
Consult with a financial advisor to devise a retirement portfolio that aligns with your goals and risk tolerance.