When you reach 50, retirement is starting to seem within reach. But, you still have at least 10 to 15 years of work left, which is a good amount of time to positively impact your burgeoning retirement account. So, in your 50s, consider it a great time to assess where you’re at with your retirement accounts, your lifestyle, and your overall financial situation.
If you review your overall financial situation and find that you’re behind on your goals, or want to ratchet your savings up a notch, here are some great steps to take in your 50s:
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Save your bonus check.
When you were younger, you might have spent your bonus on a vacation, a down payment on a new car, or other “wants”. Now, it’s time to sock away that extra money for the future. The same goes for commissions and pay raises. Basically it’s time to keep your income steady and save everything above what your “normal” income is.
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Maximize retirement plan contributions.
If you’re not doing it already, now is the time to max out contributions to your retirement plan. Contribute the maximum allowed to your 401(k) as well as any IRAs.
In addition, when you turn 50, you’re allowed to start making catch-up contributions to your retirement plans. Specifically, contribution limits are relaxed a bit, so you can channel an extra $6,000 into your 401(k) and another $1,000 into your IRA. And it’s tax-free!
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Don’t take money out of your 401(k).
If your kids are headed off to college, it can be tempting to want to withdraw from your 401(k) to help finance tuition and living expenses. But don’t do it! You’ll pay a hefty penalty, typically a 10% premature distribution penalty in addition to owing taxes on the money you withdraw. You’re much too close to retirement and have worked too hard to put yourself at risk by doing this.
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Pay down your debt
Your 50s are typically your highest earning years, which makes it a great time to aggressively pay down your non-mortgage debt. Specifically think car loans, credit cards, and any other miscellaneous debts that are not good to carry into retirement.
Paying off a mortgage may or may not be a good strategy; it really depends on your personal situation. I recommend speaking with your wealth advisor before making a decision like this.
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Implement tax-saving strategies
Higher earning years mean higher tax brackets, so this is also a good time to look at tax-saving strategies. Some possible options include:
- Directing more money into tax-deferred savings vehicles like 401(k)s or traditional IRAs.
- Consider donating appreciated assets to charities.
- Discuss tax loss harvesting strategies with your wealth advisor
