Most American workers view age 50 as the beginning of the final phase of their lives before retirement. Many workers’ careers-and living expenses-have peaked by that point and their children are either in college or about to enter, which can pose a major dilemma concerning where their savings dollars get spent. Then there are those who have yet to begin saving at this age, and there are a large number of people in this category. But all is not lost for them; they must simply take a somewhat different (and most likely more austere) path into their nonworking years. And even those with substantial retirement assets have some issues to consider at this point in their lives.
If You’re Behind
Those who have saved little or nothing for their retirements by age 50 will need to make some major changes in their budgets and lifestyles if they want to retire earlier than age 70. Although Social Security will likely still be there for them, they may not be able to live the kind of lives that they want in retirement if they don’t immediately begin an aggressive savings program. Those without any type of retirement savings should start by maxing out their employer-sponsored retirement plan contributions and probably also make the maximum possible contribution to a traditional or Roth IRA. They should also make the additional $1,000 catch-up contribution if at all possible. A 50 year old earning $60,000 a year who does both these things could accumulate a whopping $225,000 by age 65, plus any growth on the contributions. Lower and middle-class workers who haven’t started to save by age 50 can realistically expect to work at least another fifteen years, unless they earn a phenomenal rate of return on their retirement savings.
College Funding vs. Retirement
Parents of kids who are at or near college age must inevitably grapple with the dilemma of either funding their own retirement plans or paying for their kids’ college educations. Most financial experts will counsel parents not to forfeit their retirement savings to pay education expenses, because their kids will have the chance to pay off their own expenses themselves eventually. But the use of annuities and cash value life insurance can reduce the amount of assets that must be reported on the financial aid forms, which can increase the amount of financial aid available to pay for tuition and other expenses.
For the Savers
Those who have been saving diligently since they were young can pat themselves on the back for starting when they should, but it may be time to start adjusting the mix of assets in their retirement portfolios. Workers who are invested entirely in stocks may want to start thinking about reallocating at least some of their savings into more conservative asset classes such as bonds. Those who are invested in target-date funds will have this done automatically, but those who have constructed their own portfolios should make the preservation of their savings a growing factor in their investment decisions. Of course they should still preserve a growth element in their portfolios, but once they get within ten years of retirement they should probably start moving most of their savings from equities to fixed-income securities in an appropriate systematic fashion. For more information on saving for retirement after age 50, consult either IRS publication 590 for IRAs or your financial or retirement adviser.