Financial Planning and Retirement

Maintain Sound Financial Health – 5 Ways to Manage Your Money in Your 50s

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    • FNBO

      Aug 02 2021

Maintain Sound Financial Health – 5 Ways to Manage Your Money in Your 50s

Though you’ve probably given plenty of thought to your finances throughout adulthood, the countdown toward retirement begins as you enter your 50s. It’s one of the final laps of a long race, and the finish line is nearly in sight.

However, it’s important not to claim victory too soon. Leading a comfortable life now and after working depends on the state of your finances during these crucial years. Here are steps you can take while in your 50s to ensure sound financial health for the journey ahead.

Evaluate Your Mortgage

Odds are, if you took out a mortgage to buy a home, you opted for a 30-year term. In fact, 90% of borrowers do, locking in a lower monthly payment to make each paycheck go a little further.

That means if you took out a mortgage in your 20s or later, you’re still making monthly payments as you head into your 50s. If you financed a house later in life, you could easily be making payments as you retire.

There can be a risk associated with holding a mortgage at this stage of life. For one thing, it could impact how much you are able to save for retirement and whether you’re able to take advantage of incentives, such as catch-up payments.

Also, 55% of individuals who entered retirement still making mortgage payments were unable to maintain a consistent level of spending throughout the first 5 years of their post-working life. This is crucial, because the majority of people in this position have to cut their spending by 50% or more in later years.[i]

That makes your 50s a critical time to evaluate your mortgage. Consider how soon you can pay it off by making extra payments toward principle or if you can refinance to a lower rate with a shorter term.

To understand more about mortgages and the various terms and options, read our blog about mortgage loans.

Learn About Social Security and Medicare

As you enter your 50s it’s a good time start educating yourself about Social Security benefits. While these benefits are available for you to begin taking at age 67, it could pay to wait. That’s because you’ll gain 2/3 of 1% for each month you delay collecting your benefits, adding up to 8% annually.

Other factors could influence when you take payments, including if you are married. Since spouses are entitled to a portion of your Social Security, when you begin taking benefits could impact the amount of survivor benefits available upon your death.

Another thing to consider is Medicare payments. High-income households are required to pay more for Medicare, so keeping your annual income below the threshold by waiting to take social security could save you thousands of dollars.

You can also consider alternatives to Medicare. In fact, if you are retiring before the age of 65, you will have to do so, as Medicare benefits aren’t available until you reach this threshold.

Deciding when to start taking Social Security and Medicare benefits are two important decisions that you should start considering while in your 50s.

Boost Your Retirement Savings

Participating in a retirement savings plan, such as an employer sponsored 401(k), or making contributions to a retirement account, such as an IRA, is a great way to set aside funds for your retirement.

Unfortunately, there is a limit to how much you can contribute annually to these funds. For instance, individuals under the age of 50 can contribute a maximum of $19,500 into a 401(k) for 2021.

However, once you reach your 50s, the IRS allows you to make catch-up contributions of an additional $6,500 a year to an eligible 401(k) and $1,000 annually to an IRA.

Even if you’re on track with your retirement savings, taking advantage of  catch-up contributions can be a sound strategy to boost your retirement income.

Explore Long-Term Care Options

It is estimated that by the year 2030, 24 million Americans will need long-term care, and costs may reach as high as $2.5 trillion. As you enter your 50s, it’s a good time to begin considering how you will pay for this type of assistance if you should need it.

Long-term care refers to daily assistance with normal living tasks. For instance, as you age or because of certain medical conditions, you may need live-in or part-time help to take care of ordinary chores, such as cooking, cleaning, and dispensing medications.

While in your 50s, you can consider where you want to live, who will provide this type of care and whether you’ll have insurance to pay for all or part of your expenses. For a complete list of considerations, you can visit our blog on long-term care and learn how to get started.

Make the Most of Your 50s

As you enter the final stretch of your working years, it’s important to prepare for a healthy and fulfilling retirement. By taking the steps above and working with your financial advisor, you strive to maintain your current lifestyle and ensure you’re on a track to retire when you want to do so.

For more financial management tips while in your 50s, visit FNBO’s financial journey page or connect with a financial advisor.

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