I’ve got a lot of friends turning 50 this year is I thought it would be a good topic for a blog post. The 50s are the time of life when your kids are starting to become more independent and may have already moved out. If that’s true, you may have a little more disposable income. That presents a good opportunity to ramp up your retirement savings, advises Sioux City Journal in the article “In Your 50s? Do These 3 Things to Plan for Your Retirement.”
Unfortunately, many people who turn 50 start thinking now is the time to retire early, go on extravagant vacations or buy themselves big ticket items that they’ve always wanted. A better approach: consider this a time to make the most of your income, keep saving for retirement and stay on a steady course.
Use the catch-up options available to you. The federal government knows that many people don’t have the means or the motivation to save for retirement until later in their careers. That’s why there are several provisions in the tax laws that let you catch up, once you reach 50.
- You can put away an additional $1,000 above the annual contribution limit to an IRA.
- You can add $6,000 in annual contribution to 401(k)s and similar employer-sponsored plans after age 50.
- Once you pass your 55th birthday, you can make an additional $1,000 annual contribution to health savings accounts.
If you’ve got the cash to spare, these are great opportunities.
Educate yourself about Social Security. Many people rely on Social Security for their retirement, while others use it as a safety net. You’ll want to start learning about the rules.
When you take your first benefits has an impact on how much you’ll receive over your lifetime. Yes, you can start at age 62, but the difference in the amount you’ll get at 62 versus 70 is substantial. If you plan to keep working indefinitely, maximizing earnings is the best way to boost your Social Security benefits.
Get access to savings in the early years of retirement. If you can afford to retire in your 50s, know when you can tap your retirement savings. If you’ve used regular taxable accounts to invest your savings, it won’t matter when you make withdrawals. However, if your money is locked up in 401(k)s, SEPs, IRAs and other tax favored accounts, you’ll need to know the rules. Penalties for taking withdrawals before the specified age, can take a big bite out of your retirement accounts.
It is hard to think about working every day for another 15 or 20 years, once you’ve celebrated your 50th birthday. However, keeping these three key ideas in mind as you plan for the future will help put you in the best financial state possible.
Another post-50th birthday task? Meet with an estate planning attorney and make sure you have a will, Power of Attorney and other legal documents to protect yourself and your loved ones in case something unexpected should happen.
Reference: Sioux City Journal (Aug. 25, 2018) “In Your 50s? Do These 3 Things to Plan for Your Retirement”