This article is part of a three-section guide that provides financial planning to-do lists for people in their 40s, 50s, and 60s. In addition, we flag each decade’s “pressure points”—those financial products likely to be pushed at you most aggressively—and suggest how you should respond.
Healthwise, 50 may be the new 40, but when it comes to financial planning, your 50s have a focus all their own. “You’re at the peak of your earning power,” said Carrie Schwab-Pomerantz, author of “The Charles Schwab Guide to Finances after Fifty” (Crown Business, 2014). “It’s your last hurrah to build assets.” And not just build them, but take steps to protect them and prevent the big mistakes that could derail your financial future.
• Survey Social Security. Now that you’re within 10 to 15 years of taking Social Security, it’s time to take a serious look at your statement. At what point will you have earned enough credits to qualify for Social Security benefits? (Check ssa.gov.) What will you earn at 62; at your full retirement age, or FRA (67 if you’re turning 50 this year); or if you delay receiving benefits until 70? “Health aside, this helps you decide how long you should plan to keep working,” Marcia Mantell, an independent retirement business consultant in Needham, Mass., said. Tip: Waiting for FRA until age 66 boosts your benefit by more than 40 percent from age 62; at 70, your benefit is more than 90 percent higher.
• Mind the gap. Complete the Ballpark Estimate worksheet at choosetosave.org to calculate the gap between your Social Security benefits and the income you’ll need for retirement. Consult a financial adviser to develop a plan to bridge the divide.
• Put your priorities in order. The 50s are a decade of competing priorities: You want to put every spare penny into retirement savings, but your kids’ college tuition bills are coming due. “Resist dipping into your retirement account,” Schwab-Pomerantz said. “Your kids can find scholarships, grants, student loans, or get a job. You can’t get a scholarship for retirement.” So max out the catch-up provisions to your 401(k) and IRA, and consider financing additional retirement income streams, such as tax-free municipal bonds or dividend-paying stocks.
Learn how to pay for college and get a tax break, too. Also read Financial planning in your 60s.
• Update the ‘what if?’ file. If you haven’t set up a medical power of attorney or durable power of attorney, do so right away. Review your will, life insurance policies, bank accounts, and retirement accounts to confirm that the right people are listed as beneficiaries. While you’re at it, list—either in a clearly designated file online or in a notebook—contact information for your attorney, accountant, and physician; the numbers of your financial accounts; and most important, the passwords to access those accounts. Tip: Remember to tell someone where to find the info.
• Create a ‘household resource’ book. In their division of labor, Mantell’s husband is in charge of household repairs. “If Dan dropped dead, I wouldn’t have known who to call to blow out the sprinkler system or fix the sump pump,” she said. Hence their list of the electrician, the car repair guy, and what Mantell calls “the people who take care of your most valuable assets.”
• Diversify out of company stock. Even though the share of 401(k) accounts invested in employer stock continues to decline, it’s still common enough, especially in industries that have had solid gains in the last few years. Tip: Consider investing no more than 15 percent of your portfolio in your employer’s stock. If the company tanks, so do your retirement savings.
Pressure point: Long-term care insurance
The potential cost of long-term care has become a major financial risk; medical bills are the biggest cause of personal bankruptcy. LTC insurance covers a wide range of services, from assistance at home with daily activities to care in a nursing home. But many insurers have either stopped selling new policies or are raising rates on existing ones—by as much as 40 percent—because they overestimated how many people would stop paying for their policies over time and underestimated the costs of long-term care. You’ll certainly pay less if you buy a policy before age 60. Whether you can afford it over the long term—or need it—is another matter. Depending on the state you live in and the amount you’ve saved, you can probably afford to pay for long-term care out of pocket. To find state-by-state costs, check Genworth Financial’s 2014 Cost of Care survey.
This article appeared in the June 2014 issue of Consumer Reports Money Adviser.
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