You are now entering the early “pre-retirement” years, the all-important years before retirement. Hopefully, you’re doing most if not all of the things listed for age 20 to 50. If not, look them over and see if you have any “catch up” work to do. It may not seem like it, but your “retirement” (whatever that eventually looks like for you) once you reach age 50 isn’t all that far off now, relatively speaking. You may even be hoping for an early retirement, say at age 55, but let’s get real – most people who hope for early retirement won’t make it. So, it’s time to get really serious about retirement stewardship and what your finances (and life) past 50 will look like, no matter what your eventual retirement age.
Here’s the list of things to do from Age 50 through 55:
Keep building your financial literacy. Continue to expand your knowledge in this area, and start focusing more on topics related to retirement. There are lots of ways to do this. You can read books or magazines, take classes, or read blogs on the Internet. If you like online forums, I’m particularly fond of the “Bogleheads” (named after John Bogle of Vanguard Investments fame.) You can find more resources in the form of books, blogs, and other resources at RetirementStewardship.com/resources/.
Regularly monitor, track, and rebalance your retirement accounts. Time to start monitoring and tracking your retirement account(s) (IRAs, 401(K)s, etc.) more closely and periodically rebalancing them (at least once a year) to match your chosen asset allocations and risk tolerance. Hopefully by now they are certainly worth enough to justify more of your time and attention. An hour or two a month or each quarter should do it.
Put more focus on retirement asset allocation. Start putting more focus on your asset allocation strategy. An allocation that is excessively risky could doom your retirement; you may not have time to correct the situation if things go south as they sometimes do. An allocation that is too conservative may produce inadequate gains. Don’t invest in your 50s like you would in your 70s or 80s. And an allocation strategy that ignores issues like inflation is probably dangerous as well.
Check your annual Social Security statement summary. Do this to ensure it reflects the periods during which you’ve worked – as well as your income during each of those periods. Although we have no idea what Congress may do with Social Security and Medicare, your receipt of benefits (whatever and whenever they may be) will probably be dependent on the records from the Social Security Administration. IT’S YOUR RESPONSILIBITY TO MAKE SURE THEY ARE CORRECT!
Start making Catch-Up Contributions. This is a biggie: At age 50, you can begin making “catch-up contributions” to your IRA and/or 401(k), so do it, especially if you fell behind in your 30s and 40s. You may not have as much time for the additional investments to grow, but they will still be good to have down the road.
Estimate your retirement expenses and income requirements. It’s not too soon to make an initial assessment of your financial (income) requirements in retirement, and project whether you are on a path to meet those requirements. This can get tricky, so a good approach is to use a quality online financial calculator. Big firms like Vanguard and Fidelity and many others have them on their websites. I have put links to some good ones on RetirementStewardship.com/resources/.
Think about when you might retire. Based upon an assessment of your financial resources, decide when you’ll likely retire, and how much risk you’ll be taking by not continuing to work for a few more years. (Many people want to retire long before they really can.)
Set up or update your Will and Trust. If you haven’t already done so, set up a will and perhaps a Revocable Living Trust. Even if the estate tax is such that you may not need a trust to preserve assets, you need a will to ensure that your spouse and heirs are protected from disputes about what will happen after your death. If you already have them, update your will and revisit any trust documents as things do change; make sure they remain consistent with your desires and wishes.
Think about what retirement will look like for you. Begin realistically considering what your life will look like in “retirement.” Each individual is different based on his/her life experience. But retirement is looming, so now is the time to consider work and second career alternatives, volunteer and serving opportunities, travel, etc. Some may choose to go fishing or play golf every day, but most won’t. This is especially important if you’re considering a second career or starting a business in retirement.
Pay off debt. Start paying off debt, especially any high interest credit card debt. (Then, cut up the credit cards!) Hopefully you won’t actually have any (except possibly your mortgage), but if you do, start paying it off now.
Pay off your mortgage. If you have a 15 year mortgage like I recommended you do in your 20s to 40s as opposed to a 30 year mortgage, you should be well on your way to having a paid-for house. If not, plan your mortgage payments so that (if possible) it can be paid off by the time you retire – the sooner the better. The goal is to reach retirement with a paid-for house so that your expenses will be less and the equity will be there should you need it. (Keep in mind, mortgage payments aren’t the only expense of owning a home – taxes, insurance, and maintenance can add up too, so you’ll need to budget for them going forward.) If you plan to rent in retirement, make sure you will have sufficient savings to generate the income you’ll need for the monthly payments.
Reevaluate your insurance needs. This is an important one, especially if your marriage or family status has changed. You may be able to decrease insurance in some areas (e.g., life insurance), but perhaps increase it in others (e.g., more liability insurance). You should also start looking into Long Term Care Insurance and consider purchasing it before you turn 60. (The younger you are, the less it costs, much like life insurance.)
Think twice about a second home. Resist the temptation to buy a second home, especially if you plan to take out a mortgage and view it as a long term “investment.” Have at it IF you’ve become pretty wealthy and can pay with cash, that way you have no credit or foreclosure risk. (But remember, there is an “opportunity” cost associated with that decision and you may do better by renting and using your cash for something else. Do the math to compare ownership costs to occasional rentals – off season rentals, even for a month or longer, can be very attractive.) If you’re determined to take out a mortgage and rent it, make sure you understand all the costs and tax implications involved and all the downsides that come with making it a rental property.
Keep family members updated. We tend to shy away from this, but begin a regular routine of providing your potential executor (e.g., your oldest heir) with regular updates of your financial status. Have “the talk” as soon as you can and then provide regular updates, perhaps annually or every 2 or 3 years.
Prepare a financial letter for your spouse and/or executor. This is really important for the “nerdy” one in the family – the one who mostly takes care of all the finances – especially if their partner doesn’t know all the details. The idea is to provide lots and lots of information about the details that a spouse or an executor would need to know – things like company names, account numbers, websites, login information, etc. You can also make suggestions and requests in such a letter. This letter should be mostly “business”, but you can liven it up with a little humor if that suits you. (I have one that is almost 10 pages long. It’s titled, “A Letter from Your Husband Who Is Now in Heaven”, and I have a few facetious remarks in it.) Keep it with your will and other important documents in a safe place, and update it regularly (especially when you change jobs since there are usually benefits and contact information updates that need to be made.)
Enjoy yourself. If you can, and your schedule permits, start enjoying yourself a little more. Travel is a lot of fun, and will probably much easier when you’re in your 50s than it will be in your 70s or 80s. Also, make friends, family, hobbies, church, and volunteering in the community priorities. It’s a big, wonderful world that God created for us and he wants us to get out and enjoy it.
Don’t fret. If you’re really concerned that you’re not financially on-track at this point, don’t become fearful. There’s still plenty of time to get some things done. It may make sense to meet with a Financial Planner or a Financial Coach to help assess your situation and put a plan together. (You can find out more about my coaching services at RetirementStewardship.com/coaching/.)
Keep on giving. By this time, you may have your house paid for. You may even be finished with raising kids and college expenses and the like. This will free up more of your income to save and give. You should certainly save more if you need to, but keep giving tithes and offerings and consider giving more toward whatever other needs you want to help meet. Using ratios is a great way to do this (e.g., increase your tithe from 10 to 15%; or perhaps give 25% of any surplus you have in additional offerings).