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Smart Financial Moves for Your Nifty Fifties

There are several steps you need to consider if you’re entering or in your 50s, especially if you’re looking ahead to retirement within the next fifteen years or so. Here are 5 tips for a better retirement.

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What issues should i consider before i retire?

For many individuals, the decade when they reach their 50s is when they are moving into their peak earning years. It’s also prime time for making sure their retirement is fully funded. And though health concerns may not be an issue for many in their 50s, it’s also prime time for making sure plans are in place to protect retirement income against healthcare expenses and other costs typically associated with aging.

There are several steps you need to consider if you’re entering or in your 50s, especially if you’re looking ahead to retirement within the next fifteen years or so. We’ll take a look at what you can do to make sure you’ve covered the most important bases to put you on track for a satisfying, low-stress retirement.

1. Playing catch-up. The IRS has done a big favor for persons 50 and over to help them become better prepared for retirement. When you reach age 50, you are eligible to make catch-up contributions to your IRA, 401k, or 403b retirement plan. For IRAs, you can contribute an additional $1,000 per year, plus the regular annual contribution limit of $6,000 ($6,500 in 2023). You can put an extra $6,500 in your 401k in 2022 ($7,500 in 2023), added to the regular limit of $20,500 (in 2022; $22,500 in 2023). And if you’re an employee of a nonprofit or educational institution that offers a 403b, your limits are the same as for a 401k. This really matters, because you’ve still got a decade or more for your funds to compound and grow tax-free, so those extra contributions can really add up by the time you’re ready to start drawing retirement income.

2. Set up for Social Security. People in their 50s should also set up their free online account at MySocialSecurity. For one thing, having your account set up makes it more difficult for identity thieves to falsely claim benefits that belong to you. But having your account set up also gives you access to lots of free online tools and calculators that you can use to estimate the most advantageous time to begin claiming benefits. Under current rules, you can begin claiming as early as age 62, but you won’t receive full benefits until you reach full retirement age (67 for those born after 1960). On the other hand, if you decide to wait until past full retirement age to begin claiming benefits, you’ll get an 8% raise for each year you wait. So, if you wait until age 70, you’ll receive 124% of the benefit you would have gotten at your full retirement age. One final reason for having your account set up is that it will allow you to review your Social Security earnings record for each year you and your employers have paid into the system. It’s a good idea to make sure your record is accurate, since that affects the benefit you’ll be able to qualify for.

3. Money in, money out. Depending on whom you ask, most estimates for the percentage of pre-retirement income you’ll need to live comfortably in retirement range between 70% and 80%. But these are rules of thumb only, and a lot depends on what kind of retirement lifestyle you’re planning. In other words, don’t wait until you retire to start deciding about your retirement budget. You’ll want to factor in costs for healthcare, including Medicare and Medigap premiums; housing costs (will you stay in your present home? Downsize? Relocate?); regular household expenses, and any “extras” that are important to you (more travel, hobbies, recreation, etc.). Total these up at present-day costs and see how they stack up against what you’re earning now. Then, factor in ten or fifteen years’ worth of inflation to get an estimate of what you’ll be looking at when you retire.

4. Long-term care? Because people are living longer and longer in retirement, the chance that a given retiree will require long-term care at some point during retirement is increasing. According to a study conducted by the US Department of Health and Human Services and the Urban Institute, 70% of Americans reaching age 65 will need long-term care at some point. Long-term care becomes necessary when you cannot perform one or more of the activities of daily living (ADLs) without assistance: dressing, using the toilet, getting in or out of bed or a chair, or eating. The cost of long-term care can easily run into tens of thousands of dollars per year, but it is not covered by Medicare. For that reason, many people consider long-term care insurance (LTCI). The reason this is important to know while you’re in your 50s is that, like life insurance, the premiums for LTCI are lower the younger and healthier you are when you purchase it. Many experts consider that the optimal time to buy LTCI is between the ages of 50 and 65.

5. Talk to an expert. One of the most important ways you can be sure of having a sound plan in place for retirement is by talking with a professional, fiduciary financial advisor. With access to state-of-the-art planning and forecasting tools, a qualified financial planner can help you design a strategy that is custom-built for your particular needs, goals, resources, and priorities. Additionally, a fiduciary planner is professionally and ethically bound to provide advice and recommendations that place your best interests foremost. In other words, their counsel is not focused on making a sale; rather, it’s focused on what is best for you and those you care about.

Milestone offers fiduciary financial advisory services, and we specialize in helping clients make smart financial decisions for every phase of life. To learn more about how we work, click here.

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Life is full of financial milestones. We pay for college, we get married, we start businesses. But the most important financial decision we will ever make is when and how to retire. Milestone Money helps you map success to and through retirement.

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