Submitted by Warren Gallagher, CFP® on February 9th, 2020

The sage advice of retirement planning is not unfamiliar. Start early. Consider diversifying  your portfolio. Let compound interest work its magic. Yet as you inch closer to retirement, relevant advice becomes a bit more nuanced, and staying on autopilot can do more harm than good. Here’s why investing in your fifties will look different than any other decade - and how a financial planner can help you make the most of this pivotal time. 

You can picture your ideal retirement lifestyle more clearly. Retirement is no longer a distant, hazy fantasy, but a very real destination you will be arriving at shortly. Such proximity can usher in clarity and awareness of the priorities that truly matter to you. Would you like to travel? Change residence? Do you expect to work part-time or pursue a hobby? Answering each of these questions honestly can help you paint a specific and detailed picture of your ideal retirement. Enlisting the advice of a certified financial planner will help you determine which goals are within reach and how to successfully achieve them with the working years you have left.

You have more funds to allocate towards investing. Your fifties can often usher in a season of financial abundance. After decades of hard work, you’re likely at (or near) your peak earnings potential, meaning you’re bringing home more income than ever before. Costs at home might be dwindling, also; older children may be growing more financially independent and leaving the nest, providing you with additional capital to put towards retirement. With more empty rooms, the prospect of downsizing may seem more alluring - not only can you reduce the cost of your monthly mortgage, but your property taxes and home maintenance costs will likely shrink, as well. A certified financial planner can make sure you’re getting the most from every extra dollar. 

You have more places to put your money. For most of your working life, the IRS has placed a cap on the amount you can invest each year towards retirement. Once you blow out the candles on your fiftieth birthday cake, you are eligible to make catch-up contributions towards your 401K and IRA accounts. In 2020, individuals 50 years and older can contribute $26,000 towards their 401K accounts (up $6,500 from the $19,500 cap placed on younger investors) and $7,000 towards their IRA accounts ($1,000 more than the typical $6,000 limit). These allocations have even more earning power if your employer is matching your contribution; in that case, it’s even more imperative to direct as much of your paycheck towards retirement as you can.

You may also want to consider putting money aside to prepare for medical costs you might face in retirement by contributing to a Health Savings Account (HSA). Alternatively, it may be advantageous to purchase Long Term Care (LTC) insurance to offset the cost of a nursing home or in-home care, should you need it. Finally, allocating money towards term life insurance can help protect those who depend on you. A certified financial planner can help you understand your options and make the best choice for your income, health, and family.  

You need to appropriately manage risk. Investing in your fifties is a delicate dance. Although you are nearing retirement age, you still have a decade or more to invest and prepare. Many individuals can begin to panic as they see the market ebb and flow, and will often pull their money from more-volatile stock options to fund less-risky bonds. Although this transition should be a major focus in the years leading up to retirement, it is essential to make this transition in a mindful way. A certified financial planner with a strong grasp of the market can help you to reduce risk gradually without compromising your rate on return prematurely. 

Retirement should be an exciting, rewarding, and restful season, full of recognition for decades of work and commitment. It is no time to second guess your investments or wonder whether your careful planning was enough to compensate for market changes, inflation, and taxes. Bringing a certified financial planner on board to prepare for this season well reaps not only financial health, but mental and emotional confidence, as well. Can you really put a price tag on knowing your money will not only get you to, but through, retirement? 

Tags:

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. 

There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.  Investing involves risk including loss of principal.