Have you heard about "year-end planning"? What does that mean and what do you need to do before 12/31? Check out our list.
What’s exciting about turning 50? If you have children, you’re possibly closer to them being independent! This will free up your time and possibly your wallet. You can start enjoying hobbies or adding to your savings for various goals. Even if you don’t have kids – your 50s are your “peak career” years. You’re likely earning more than you ever have and you’re getting really close to retirement! Don’t get “senioritis” just yet. Finish your last working years strong and saving!
Your 50s also come with some risks and concerns. Your health isn’t quite what it was when you were in your 20s. You need to start considering a life without a “guaranteed income” from an employer. Aging parents of your own might be a responsibility you’re facing. What other financial considerations or risks should you be thinking about in your 50s?
We list these risks below not to scare you, but to help prepare you with ways to navigate these challenges and secure your prosperous future.
Do you know someone that recently retired between 2020 – 2022, when the market wasn’t doing great? They were probably pretty stressed if they weren’t working with a financial advisor and had doubts about whether they made the right decision.
One of the primary financial risks for investors in their 50s is market volatility. The stock market can experience sharp ups and downs, which can significantly impact investment portfolios. Research continues to show us that staying invested when you are in a proper portfolio is the best way to mitigate market risk. One of the worst things you can do is to sell all of your investments and be too afraid to stay in your investments, but people often choose this very outcome. If your recently retired friends stayed invested, they would be seeing some gains in 2023 to rebuild their portfolio.
The stories heard of investors ‘losing everything’ usually comes down to a lack of diversification, discipline and a little or no faith in their investment strategy. It’s important to consult with a financial advisor to ensure your portfolio aligns with your risk tolerance, investment goals, and time horizon.
These last few years have been fraught with economic uncertainties, to the point it feels unparallel to any other time in history. But our minds are being tricked by “recency bias”. We are forgetting all the previous decades when we faced recessions, inflation, high unemployment, slow economic growth and so on. These uncertainties can affect things like job security.
Something you can do right now, if you haven’t already, is build an emergency fund equal to six months of living expenses. Having cash reserves can provide a financial safety net during unforeseen circumstances. Another proactive step to reducing this risk is knowing your current employment benefits, and utilizing them to the fullest extent. If you have company stock (ISOs or RSUs), make sure you know your vesting schedule and have a plan for if you’re let go.
It can be scary to consider losing a job toward the end of your career if you have to start in a new field or a reduced income. This is especially hard if you were planning on only working for another 4 – 5 years. Planning can help you to look at alternate scenarios to anticipate unexpected events like this.
Inadequate Retirement Savings
What is the retirement lifestyle you want to live? Have you thought about what travel you may do or hobbies you’ll want to enjoy? It’s exciting to dream and mentally prep for that life. But are you financially prepared for that life?
Once you hit your 50s, you should closely evaluate your retirement savings to ensure you can live that dream you’ve been planning. Take full advantage of employer-sponsored retirement plans, such as 401(k) or pension programs by maximizing your contributions, especially if your employer matches them. At age 50 you can contribute beyond the maximum amount for many of these plans. These “catch up” contributions can help you boost your retirement reserves to the level needed.
Cost of Aging
No one wants to think of the aches, pains or illness we may acquire as we age. But not thinking about it will put you in an even worse position when they inevitably happen to us. It makes sense that health care is more costly as you age, you need more of it! And while it makes sense, these rising medical costs can still pose a significant financial risk.
A potential roadblock for your track toward retirement could be unexpected disability or illness. Having access to adequate healthcare coverage and some savings to fill the gap should this occur can help to keep you on track to retire when you plan to. If you haven’t already, evaluate your disability insurance in the event you aren’t able to work due to a disability. If your work offers a higher disability benefit, you may want to elect for more coverage.
Another helpful resource is a Health Savings Account (HSA). These are only accessible via a high-deductible healthcare plan. An HSA offers tax advantages, such as pre-tax contributions and withdrawals for qualified medical expenses are tax-free. Once you reach age 55, you’re able to add an extra $1,000 beyond the maximum to help you “catch up”.
Living too Long
How long do you plan to live after retirement? It’s a question no one can answer with certainty. Living longer is great, but it can also present a financial challenge. Ensure that your retirement savings will last throughout your retirement years. Taking more income than your portfolio can support can create a shortfall. It is best to use longevity planning to determine how long your investments can last, and assume you’ll live well into your 90s. Creating an efficient spend down strategy, like utilizing accounts with different tax rules to diversify your tax income, can also help.
Social Security Misconceptions
You’ve worked really hard for the past three decades and paid into social security. It’ll be nice when you’re retired and finally get to see some of that money come back! But don’t be caught with the wrong assumption that social security alone will be sufficient to fund your retirement. Failing to save enough and relying on social security for the majority of your retirement savings can lead to a disappointing retirement. Plan your retirement based on your personal savings, investments, and other income streams, keeping social security as an additional supplement.
Your 50s can be a very exciting, rewarding and promising decade. Get excited to finish your career with a bang. And don’t stress too much about the financial risks, which are an inevitable part of life. With careful planning and thoughtful preparation, you can successfully navigate these challenges. By diversifying investments, building emergency funds, maximizing retirement savings, preparing for healthcare costs, and being realistic about social security benefits, you can reduce financial uncertainties and secure a sound financial future. Feeling like you may need help with some of these challenges? The guidance and support of a qualified financial advisor is invaluable as they partner with you so you can make informed decisions.
M & A Consulting Group, LLC, doing business as CAM Investor Solutions is an SEC registered investment adviser. As a fee-only firm, we do not receive commissions nor sell any insurance products. We provide financial planning and investment information that we believe to be useful and accurate. However, there cannot be any guarantees.
This blog has been provided solely for informational purposes and does not represent investment advice. Nor does it provide an opinion regarding fairness of any transaction. It does not constitute an offer, solicitation or a recommendation to buy or sell any particular security or instrument or to adopt any investment strategy.
Past performance is not a guarantee of future results. Diversification does not eliminate the risk of market loss. Tax planning and investment illustrations are provided for educational purposes and should not be considered tax advice or recommendations. Investors should seek additional advice from their financial advisor or tax professional.