My hope for every fifty-something investor is that you have by now attained financial independence, where you have enough assets to stop working if you wanted and live off your investments. Most aren’t quite there yet, but if you’re working with me, we have a good idea of your finish line, a quantifiable goal, and the steps needed to get there.
What does scare me is when someone says that they plan to never retire, so this doesn’t matter or apply to them. While it’s natural to wish that time would stand still or that things won’t change, it’s a poor plan to assume that change isn’t going to happen to your life.
I think of a relative who worked for one company for 30 years, until age 59, when they went out of business. He was used to making a certain level of income, which just wasn’t available in his small town, for someone with skills that didn’t easily carryover to other types of business. He was planning to work forever, but it turns out, he wasn’t interested in jobs that paid 50% of his previous salary. He was unemployed for three years, before starting Social Security at age 62.
For many employees in their fifties and sixties, they want to keep working, but if they lose their job, they discover how tough it is to get another high-paying job in today’s economy. Others leave work due to health issues, or to care for an ailing spouse. The point is that things change. It’s great to work if you want to, but not because you have to. The single-minded goal of every fifty-something investor should be to build their nest egg to where they would be fine if they didn’t work.
1) Prepare your retirement finish line. What size nest egg should you have? At a 4% withdrawal rate, you need 25-times your annual needs. Need $50,000 in withdrawals? Your goal is $1.25 million. Are you there now? How much do you need to save to get there? And while you are at it, download your Social Security statement.
Why 3% withdrawals might be better for retiring early: Can You Retire In Your Fifties?
2) Increase your contributions to catch-up levels. In the calendar year that you turn fifty, you can now contribute an extra $1,000 to an IRA ($6,500 total), and an additional $6,000 to your 401(k) or 403(b) ($24,500 total for 2018). There’s also a $1,000 catch-up for Health Savings Accounts (HSA), but you have to be 55 for the HSA catch-up.
3) While it’s possible to manage debt into retirement, most people are more confident about their finances when they are debt-free before they retire. I’d suggest you avoid creating new debt in your fifties and consider paying your mortgage off entirely.
4) Many of us are going to need some type of long-term care in the future, especially as life expectancy rises with medical advances. Increasingly, in-home care can allow people in their eighties to remain in their home. Why are we talking about this now? The most cost effective time to buy long-term care insurance is in your fifties to early sixties. You can’t wait until you have a need for care, and then apply for insurance. Instead, we ought to look at creating a pool of funds that could provide this care should you or your spouse need it, decades in the future.
5) Rethink Retirement. Some of you will have a traditional retirement, where one day you stop working and never work another day. However, many of you will have a very different “retirement” than your parents. Maybe you change careers, go to part-time, start a business, or find new sources of income. It’s all possible! Let’s figure out how to make it happen.