Age 50: Retirement Planning Is All Downhill From Here

16598392_sRecently, I attended a surprise 50th birthday party thrown for a friend of mine. That age is a milestone in anyone’s life, and I made sure to remind him more than a few times that I have not reached that milestone yet.
Even on the weekends, I find it hard to completely remove my financial planning hat, and I couldn’t help but think about how along with the party, balloons, and somewhat crude old-age jokes, that half-century mark brings a slew of life-changing implications. Although people often think about the age they intend to stop working when planning for retirement, our focus is to help our clients prepare for that moment and onward, so our golden age in retirement planning comes much earlier.
Turning 50 tends to be a wake up call for many pre-retirees. And with approximately a decade or so until retirement, it is so important to understand the effect of timing on an investment plan. In our 30s and 40, if our investments take a hit, we have a little bit of time to try to make up what we have lost, although in the long-run we will likely still be below that initial bench mark. At age 50, well, we cannot afford to lose. We simply don’t have time on our side anymore. Each dip leaves a lasting impression, deeper than the last.
Fifty is the age when we must take a critical eye to our financial plan and evaluate the risk on each dollar saved. If we have previously neglected our retirement plan, it is the time to begin to take it seriously. Ask yourself, is your money secure? Is it braced for the next market downturn? Can you afford to lose 20 percent, 30 percent, or even 40 percent? When that downturn occurs, what is your strategy to get out of the market? Look, in our 50s, we no longer have the luxury of not knowing these answers. We must take action. Life is all about decisions. And decisions have consequences. And isn’t inaction a decision in itself?
Luckily, our friends in Washington understand the importance of this age as well, so there are a few perks thrown to those who are on their way down the back side of that hill called life.
Congress gives us a 50th birthday present; I call it stash the cash. It’s the ability to contribute an extra $5,500 in our retirement plans. The regular limit on contributions to a 401(k), 403(b), or 457(b) is set at $17,500 this year, but the catch-up provisions give us the freedom to bump up that limit to $23,000 after turning 50. It is important to take advantage of this gift, especially in the final years leading up to retirement. Finding the room in our budgets to increase our contributions accordingly can make a big difference down the road.
Just as with our 401(k) and other employer-sponsored plans, the limit on what we can contribute to our Individual Retirement Accounts (IRAs) changes after hitting the half-century mark. Instead of the $5,500 we can contribute to our IRA in our younger years, the 50-year milestone gives us a $1,000 increase with its catch-up provision. One thousand dollars might not seem like a big difference, but when considering the tax implications and the value of our IRAs in retirement, that $1,000 can be a real game changer.
In addition to the contribution increase, we are also able to create an IRA for a spouse that is not in the workforce. Just as with fine wine, the strengths of our IRAs only get better with age.
With age comes clarity, and that clarity might be our biggest advantage in retirement planning. Budgeting and planning for our retirement costs is nearly impossible to do accurately in our younger years, but as we hit 50 and beyond, we are able to create a much clearer picture. At age 50 we have a pretty good idea of what our financial lifestyle goals look like 20 to 30 years down the road. We may have that retirement destination picked out. We may have a good idea of what our healthcare costs will include. Furthermore, at 50, many of the expenses we have been accustomed to paying for years should start to wind down. Mortgages, college expenses and other child-related expenses all decrease, so there should be more room in our budgets to take advantage of those catch-up provisions mentioned earlier.
So, Cutter Family Finance readers, even though most people will continue to focus on that age when they can skip off into the sunset of retirement, it’s important not to forget about the milestones you are hitting along the way. Recognizing the advantages of turning 50 might make all those old-age jokes a little easier to stomach. With age comes wisdom, and by using this wisdom to your advantage, age can bring you a more successful retirement plan as well.
Be vigilant and stay alert, because you deserve more.