Now that you have finally extinguished the flames from your birthday cake, you may want to think one stage ahead and review your retirement plans. Age 50 may have arrived quickly, but age 67 will appear before you know it. Are you prepared? Consider these seven tips to maximize your chances of a fulfilling retirement.
1. Re-evaluate Retirement Plans – Did you plan on traveling around the world in retirement? If so, did you start saving for retirement in your 20s?
Now that retirement is closer, revisit your retirement goals (or create them, if you haven't already done so). Are they realistic based on the size of your nest egg and your anticipated Social Security benefits? You still have time to adjust your plans, your savings trajectory, or both — but time is running out.
2. Review Investments – Typically, investment portfolios become more conservative as retirement nears. If you are behind in retirement savings, you may prefer to keep your investments directed toward higher-risk, higher-reward investments — but have a scaled-back set of retirement goals in case the market fails to produce. Otherwise, adjust your portfolio toward lower risk, or seek a target fund that will make the adjustments for you based on your expected retirement age.
3. Maximize Retirement Savings – At age 50, you can add extra "catch-up" contributions annually to your 401(k) and/or IRA. For tax year 2017, IRA limits for those aged 50 and above are $6,500 including a catch-up contribution of $1,000, and 401(k) limits are $24,000 including a $6,000 catch-up contribution. Unfortunately, you'll have to wait another five years for a Health Savings Account catch-up contribution (assuming the rules are still the same when you reach age 55).
4. Manage Debts – It's preferable to enter retirement nearly debt-free, but it may not be practical. Try paying off higher interest debt (credit cards) first while paying the minimum on other debts to avoid penalties. If you want to reduce your interest payments and lower your debt, try the free Debt Optimizer by MoneyTips. Meanwhile, consider whether a portion of your money is better applied toward retirement funds. For example, if you completely pay off a credit card debt instead of applying those funds toward a 401(k) with employer matching funds, you are missing out on tax-deferred benefits while rejecting essentially free money. Would those benefits be greater than the interest charges on your debt?
Debt consolidation may help you better manage multiple debts and make payment tradeoffs easier to evaluate. Personal Finance Authors David Auten and John Schneider, aka "The Debt Free Guys," explain: "Debt consolidation allows you to aggregate all of your debt that you might have in all sorts of different places into one location so you can pay it off...which makes it easier to track." Make sure that the interest rate on your consolidated debt is favorable if you choose that route.
5. Re-evaluate Your Budget – Greg McBride, Chief Financial Analyst at Bankrate.com, sums up the purpose of a budget: "This is really your score card to tell you whether or not you're living within your means." You can't address retirement savings or debts if you don't have any extra money to apply toward them.
Take a hard look at your monthly expenses. Are you getting the value you need from all of your discretionary purchases? Only you can decide whether you would rather spend now or save for later.
6. Consider New Sources of Income – It's not too late for you to join the "gig economy" if you have marketable skills that you can use on the side. Can you consult, write a book, or monetize a hobby that can become a side job or second career upon retirement?
You may also consider selling any unused assets as a one-off boost to your income, and pass the windfall through to your retirement fund – but think about tax ramifications before selling off items of considerable value.
7. Look at Insurance Differently – At this point, a term-life policy may be less useful than planning ahead with long-term care insurance. Medicare generally does not cover long-term care costs, and you must spend down most of your assets before Medicaid is available. Balance the cost of long-term care premiums with your comfort level in addressing any long-term care costs with your savings and other assets, but realize that premiums will increase significantly if you wait until retirement is imminent.
Do you find this list overwhelming? Seek professional financial help. April Lewis-Parks, Director of Education and Public Relations at Consolidated Credit, suggests using online tools to assess your current retirement situation and create a plan, but adds, "Professionals are always great to ask questions to." Use one source to check the other.
Take action now to make your transition into retirement as smooth as possible. You have better things to do on your 67th birthday than scrambling for last-minute retirement options – for example, figuring out how to put out 67 candles before the fire department arrives.
Let the free Retirement Planner by MoneyTips help you calculate when you can retire without jeopardizing your lifestyle.