Reset Your Retirement Reality – What To Do Now That You Are 50

As a wealth advisor, when I mention retirement to someone in their 50s and 60s, I typically get a mixed reaction. On one hand, the word conjures up scenes of days playing golf, traveling or pursuing other leisure activities. More often though, insecurities surface about whether they have saved enough to pursue the life they want to live in retirement and whether they will outlive their money. 

Whether you have been saving for retirement all along or need to up your game now, there are things that 50-and-60 somethings can do to reset their retirement reality.

1. If you don’t have a financial plan by now – do this first:

When you reach your 50’s (pre-retirement years), it’s essential to know how much money you will have to live on in a retirement that could potentially last 30 years or more. If you haven’t done any planning up to this point, now’s the time.

Start by figuring out how much money you will you have when you retire. You want to consider savings, like your 401k, any pensions, Social Security benefits, and other sources of income like rental properties.

Kiplinger’s has a pretty good Retirement Savings Calculator. Once you plug in a few numbers, it will help you estimate the future value of your retirement savings and determine how much more you need to save each month to reach your retirement goal. 

Saving enough for retirement is only half of the story. You have to know how much you are spending and if you plan to spend as much in retirement. The best way to do this is to know what you are spending now and know how your expenses will change after you retire. If you do online banking, your bank probably has a budget feature built in. If not, try Quicken.com or Kiplinger has a very useful Household Budget Worksheet tool.

Once you create your financial plan, establish a monitoring process to regularly review and update your assets and spending budget for changes in circumstances. Having this base plan in place often improves your decision making throughout retirement.  The plan is also helpful should an unexpected event require you to change course. 

2. Avoid living larger than you can afford:

When the kids (and the bills for kids) are gone and couples are in their peak earning years, they may feel that they can spend more on dinners out or on more frequent travel or expensive vacations. But overspending now can eat into retirement savings over time.

It’s better to know what your retirement savings goals are each year, then prioritize the indulgences like a special trip, and work those into your budget.

3. Factor in the costs of healthcare during retirement:

Have you thought about how much of your retirement savings you will spend on healthcare? If not, you’re not alone. Health care costs continue to rise and it’s these costs that many retirees don’t figure into their overall retirement expenses. Each year, Fidelity puts together a retiree health care costs report about what you can expect to pay for healthcare in retirement. They estimate that couples age 65 who are retiring this year can expect to spend about $245,000 on health care in retirement. That’s a 12% increase since last year and doesn’t even take into consideration the costs of long-term care.

AARP has a very helpful Health Care Costs Calculator that gives pre-retirees an idea of what their healthcare costs will be when they retire.   

4. Examine whether you are taking enough investment risk:

Balancing risk and return is tricky in our low interest environment. And now that Britain is exiting the European Union, the Fed is not likely to raise interest rates any time soon.

Retirees may need to keep a greater percentage of stocks in their portfolio to earn a better return or consider other investments to boost their investment income. They may want to consider investments like insurance-linked securities, Master Limited Partnerships or Real Estate Investment Trusts.

To understand these investment options, we provide an explanation of each on our website in our article: How to Generate Income in a Zero Interest Rate Environment. 

5. Consider saving in a Roth IRA:

This can be used as an effective estate and tax planning strategy.

If you expect that you will be in the same or higher tax bracket even after retirement, then you may want to consider a Roth IRA. It has a few advantages:

• ‍Instead of deferring taxes like a regular IRA, you pay the taxes up front and the growth or gains on your initial investment are tax-free.
• Since you won’t have to take a Required Minimum Distribution from a Roth IRA, it will reduce your taxable income.
• This is a good strategy for someone who does not need this money in retirement, but plans to pass it on to their heirs.

The Roth IRA does have income limits and phase-outs based on your Modified Adjusted Gross Income (MAGI). Refer to Schwab’s Roth IRA Contribution Limits chart to see if you qualify.

6. Wait to age 70 to take Social Security:

There are three important criteria to consider if you wait until 70 to take your Social Security benefit:

• ‍You are healthy
• You have a reasonable expectation that you will live beyond 80, and
• You and your spouse don’t need the income to meet your living expenses at least until you reach age 70

If you meet all of these criteria, you may want to wait and take your Social Security benefit at age 70. Here’s why.

The Social Security Administration will pay you 8% more per year for waiting. For married couples, the survivor benefit is more if the higher-earning spouse waits until 70 to take their benefit.

Again, AARP comes through with a really helpful Social Security Benefits Calculator. It will estimate your benefits, show you what your payout may be each year from age 62 to 70 and help you to maximize your overall benefit.

I need to emphasize that when and how you claim your social security benefits is complicated. It’s a good idea to speak to a financial advisor who knows these rules before claiming your benefit.

7. Phase in retirement:

Retirement should be about having the much-earned time to enjoy the fruits of your labor. But for some people, going immediately from working full-time to facing a day with an empty calendar may be too much all at once. Instead, we recommend that 60-somethings try on retirement by working part-time for awhile.

Semi-retirees remain involved and relevant, and the added income will help to stretch their retirement nest egg since they won’t have to dip as far into their savings to meet their living expenses.

If this sounds like a good idea to you, here are a few of our favorite retirement books:

The Retiring Mind: How to Make the Psychological Transition to Retirement

What Color is Your Parachute? for Retirement: Planning Now For The Life You Want

Changing Course: Navigating Life After 50 

Planning for retirement doesn’t have to be stressful. At Bridgewater, our wealth advisors, financial planners and tax specialists work together to answer all of your questions and create a plan for your retirement. 

Please give us a call if you would like to schedule a time to talk 301-656-1200.