Your guide to financial decisions: 50’s edition

Your 50’s are the decade where put the finishing touches on your retirement plan. The retirement planning you’ve done in previous decades was likely driven mostly by emotional motivators. For example, choosing a target retirement date in your 20’s or 30’s informs your long-term savings plan, but was probably driven by factors like how many vacations you planned to take each year, or when you wanted to start having kids. Now, it’s time to reevaluate this plan using much more pragmatic tools and metrics that will carry you into a comfortable retirement.

Decide when you’ll retire.
The first step toward making retirement a reality is figuring out how you can maximize your retirement benefits through social security. Access your social security earning report to determine what benefits you will earn if you work until 62, your “full retirement” age of 67 (for those born in 1960 or later), or until 70. Remember: waiting until 70 boosts your benefit by more than 90 percent. If you can put off retirement until then, you’ll be that much more comfortable.

Your social security benefits and any fixed income from annuities or pensions should be enough to cover your basic expenses, such as housing, utilities and food. There are online calculators that will calculate any gap between your social security benefits and the income you’ll need for retirement.

If you’re falling short, you still have time to adjust by working longer, buying an annuity or saving more. Fortunately, federal law lets people over 50 contribute more than the standard limits to 401(k) plans or IRAs. For example, a 50-year-old can contribute $6,000 a year above the regular annual cap of $18,000.

Make being debt-free your ultimate goal. Get rid of your debt once and for all - we’re talking car loans, credit cards and old student or personal loans. Since your life-long earning power is likely peaking now, you can and should devote ample resources to getting your debt load to zero. Prioritize paying down the debt with the highest interest rate.

Consider refinancing your mortgage if you got your mortgage before the Great Recession, when rates were close to 7 percent. If you can refinance to secure a 15-year loan at just over 4 percent is likely the right move. Keep in mind, of course, this would raise your monthly payments. If you cannot maintain that cost indefinitely, you could make a 30-year-loan into a 23-year loan, for example, with one extra payment each year. But don’t pay off your house at the expense of saving for retirement – having no mortgage but no cash isn’t a great solution, either.

Cut back on extra expenses if possible. Another important step to take in this decade is a defensive one: taking stock of your financial obligations outside your retirement needs is critical to avoid getting caught off guard. You may still be paying for your child’s college tuition, and perhaps caring for your parents, too (one in five American adults have provided financial support to an aging parent or adult child during the past 12 months).

These responsibilities are necessary, of course, but you should do what you can to protect your retirement. As one financial planner told Consumer Reports, “your kids can find scholarships, grants, student loans or they can get a job. You can’t get a scholarship for retirement.” Think about ways to bring down the cost of college, like opting for a year or two at community college, or having your children live at home during their studies to avoid steep room and board costs.

Although a tough conversation to have, you should talk to your parents about planning to cover their medical expenses should they need them in their advancing years. Having that conversation now can mean better care for them and better financial health for you in the long run.

Take care of yourself. An important step in prepping for retirement is to make sure your long-term care is taken care of, as well. Some financial advisers recommend signing up for long-term care insurance, which help pays for assisted-living costs or at-home health care. There’s no question that you’ll pay less for a policy if you get one before age 60, when rates tend to shoot higher.

The real question is whether you need it and can afford it: a policy can cost a married couple between $2,000 and $5,000 a year. Plus, if you have substantial assets into your later years, you may have enough money to pay for long-term care on your own. If your assets or income are below average, you may not need insurance since you might qualify for Medicaid or state assistance. Speak with a financial planner to determine your family’s needs.

Stay the course. With less than half your working life left, your earning power right now can give you the financial leverage to protect the assets you’ve built -- or make up for past mistakes and unforeseen events.