Financial strategies for your 50s

In your 50s, you're certainly closer to retirement, but how close largely depends on the goals you've set and are on track to achieve.

If you’re planning to wait until age 65 or later to retire, this article offers some steps you can take now to help make sure you are on track to live your golden years on your terms. If, however, you’re planning to retire within the next five years — the average retirement age in the U.S. is 62* — the “Financial strategies for your 60s” page might be more appropriate for you.

Understand your full financial picture

As you enter this decade, retirement is no longer a distant prospect. It’s closer to reality. Perhaps you also have a few short-term goals before you get there, such as a home renovation or a dream vacation.

Now is the time to examine your goals and ensure your finances are in order. A good first step is to get a clear understanding of your full financial picture — your assets, liabilities, income and expenses. Doing so will help you assess whether you're on track to meet your financial goals.

Your current spending can also serve as a starting point for estimating your spending in retirement, although you'll likely need to make some adjustments. For example, your housing costs will decrease if your mortgage will be paid off when you retire, but your health care costs will probably increase as you age.

If you're not on track, you may need to think about ways to rein in your expenses so you can increase your savings. This could require making modest changes, like canceling subscriptions or substituting name brand groceries for generic ones. Or it might mean making larger and more impactful shifts, like downsizing your home or lifestyle.

Reflect on your retirement goals

Successful retirement means living on your terms, but what are those terms? Consider your ideal retirement lifestyle: How do you want to spend your time? What new hobbies do you want to pick up? Where do you want to go? Who do you want to see?

Answering those questions will give you a clearer idea of how much money you’ll need in the next phase of your life, which will help inform your saving and investment strategies.

Additionally, retirement planning and preparation are not solely about finances: A majority of retirees say that health, family and purpose are all important to their well-being. Many retirees struggle with social isolation and how to find a sense of purpose once they stop working. One way you can better plan for these aspects of retirement is by “test-driving” activities before you retire to see how they suit you. That can help reduce the feeling of disorientation and uncertainty common among many new retirees.

Pay off your debt

Got debt? Now would be a great time to pay it down, so you don't have that burden in retirement.

Begin by paying off the debt with the highest interest rate, then move on to the next-highest. Credit card debt is a good place to start, since it usually comes with high interest rates. When all your high-interest debts have been paid down, think about whether it makes sense to continue paying debt or directing extra cash toward your other goals. At a minimum, you should think about the trade-offs of paying down additional debt with having an adequate emergency fund and saving for retirement.

Take advantage of catch-up contributions

With retirement potentially around the corner, make sure you're saving enough each month to achieve the retirement you want.

Employer retirement plans (such as 401(k)s) provide significant tax benefits when it comes to saving for retirement, subject to annual contribution limits. If you have taxable compensation, you might also contribute to an IRA for you or your spouse, also subject to annual limits. Keep in mind that once you turn 50, you can take advantage of “catch-up” contributions in employer plans and IRAs.

If you're already hitting these limits, other products and strategies may allow you to contribute additional amounts on a tax-deferred basis. You can also move extra savings to a taxable investment account, such as a brokerage account, which lets you buy and sell stocks, bonds, exchange-traded funds (ETFs), index funds and other investments. While such an account doesn’t offer tax benefits, it does offer much more flexibility than tax-advantaged accounts.

What should you invest in? Consider the perspectives below to craft a strategy that fits your current life stage.

Develop a smart investment strategy

As always, how you balance your portfolio should be based on your goals, when you'll need to access your money and your comfort with risk.

When it comes to saving for retirement, you can afford to take on more risk in your earlier years. As you draw closer and closer to retirement, though, you may want to be more balanced with your investments.

Growth still matters because your retirement could be 25 or 30 years long, and you'll need investments that can keep up with inflation. But you'll also need investments that help meet your income needs in retirement and provide more stability. Also consider minimizing your exposure to higher-risk investments and instead invest more in stable stocks, government and investment-grade bonds, and cash.

Review your investment portfolio with your Edward Jones financial advisor to make sure it still matches your life stage and long-term goals.

Make a long-term care plan

It may seem too early to be thinking about potential long-term care needs, but it’s beneficial to start planning in your 50s. If you want insurance as part of your plan, your health may be better, you have more time to spread out premiums and you may still be working. Taken together, this makes it more likely you can get coverage and afford the premiums.

Planning early also gives you more time to discuss your care and aging preferences with your loved ones. The more proactive you are, the more options you may have and the more confident you can be that your wishes will be met.

Consider your legacy goals

It's also a good practice to regularly review your estate plan to ensure your documentation is up-to-date and aligned with your wishes. If you don’t yet have an estate plan, there is no better time to start one. Be sure your plan covers what you would want to happen if you became unable to make financial and medical decisions for yourself, as well as in the event of your death.

As retirement draws near, you'll also want to think about your legacy goals. After all, you shouldn't spend in retirement what you want to leave as a legacy, so you'll want to assess your ability to meet both goals if leaving a financial legacy is important to you. You may also want to invest the assets you plan to leave as a legacy differently than you would for retirement.

How Edward Jones can help

A financial advisor can help you craft an effective strategy for achieving and maintaining the retirement lifestyle you want as well as reaching other financial goals. If you’re interested in learning more, reach out to an Edward Jones financial advisor today for a no-obligation consulation.