Reaching age 50 is a milestone that most of us celebrate. Still, after you’ve blown out the candles and bid farewell to your guests, you may have a headache from too much champagne, but otherwise feel the same as before.
Wake up! This is the time to reassess and make sure that your financial plan is in order. If you push it off until later, you may make serious mistakes that will jeopardize your future financial security.
After acknowledging this momentous birthday, Austin Frye, a certified financial planner (CFP) at the Frye Financial Center in Aventura, Florida, invites prospective clients to a financial review. With those who have done little budgeting or saving, he’s direct. “You have one last chance to put yourself on course to achieve a successful retirement,” Frye tells them. “It’s time to talk about saving more, spending less or both.”
Some folks listen, but others don’t. Following are 10 errors that Frye and other financial planners see 50-year-olds make that may, indeed, have serious consequences down the road.
First, how much time do you really have? Are you planning to work until age 65 or 70? Think again, says Scott Stratton, a CFP at Good Life Wealth Management in Little Rock, Arkansas. Data from the Employee Benefits Research Institute (EBRI) show that 48 percent of people retire sooner than planned, often due to layoffs, health issues or family matters. “Lose your job in your 60s, and it may be incredibly difficult to find a new one, especially with the same pay and benefits,” Stratton warns. Likewise, Andrew Houte, a CFP at New Level Planning & Wealth Management in Brookfield, Wisconsin, advises his clients to plan for an earlier retirement date. “If you work well into your 60s, it should be because you want to, and not because you have to.’”
At this point, some people realize that time is running out, says Mackenzie Richards, a CFP in Providence, Rhode Island. “They may do one of two things: take too much risk, often with speculative investments, or sell everything and move into cash, CDs or fixed annuities. The latter strategy could deprive them of decades of growth.” And the former could result in big losses when they can least afford them. He recommends finding a CFP who can help you create an investment strategy based on your goals, aspirations and concerns. If you prefer to control your own portfolio, then look for a planner who will work with you to create that plan, while you manage your investments. “This can be a cost-effective way to get a second opinion on your financial situation and prepare an investment strategy that keeps you from going to extremes.”
What if you are behind in your saving? Fortunately, as a 50-year-old, you can catch up. For 2021, the IRS is allowing individuals to contribute an additional $1,000 to an IRA on top of the standard $6,000 limit. Self-employed people 50 and older with a SIMPLE IRA can add $3,000 to the $13,500 limit. If you have an employer-sponsored 401(k) you can max out your contributions by adding $6,500 over the $19,500 limit. “And while you are still gainfully employed, you can start a Roth IRA,“ adds Rafael Rubio, a CFP at Stable Retirement Planners in Southfield, Michigan. “The contribution for this year is up to $7,000 for those 50-plus.”
Paying down debt is also essential, though many people don’t do it aggressively enough, says Christopher Lyman, a CFP at Allied Financial Advisors LLC in Newtown, Pennsylvania. Ideally, you should work toward having no debt except your mortgage. Once other debts are paid off, and you are funding your retirement, then focus on paying down your mortgage. “There’s nothing like being financially independent in retirement,” he adds.
What about the kids? Arthur Ebersole, a CFP at Ebersole Financial LLC, in Wellesley Hills, Massachusetts, sees parents take on too much debt to fund their children’s college because they did not save enough in their 529 plans. They take out home equity loans or other debts that they may be unable to pay off before retirement. “Mortgages and college loans put a significant drag on monthly cash flow, especially for those on a fixed budget,” he says. “Instead, have your kids take loans in their names, and help them with payments as much as you can or wish to.” Marguerita Cheng, mother of three, and a CFP at Blue Ocean Global Wealth in Gaithersburg, Maryland, concurs. “Some parents are afraid to have the conversation with their student and school about the right financial fit. But you don’t want to compromise your own financial security.”