In your 50s? Here's how to get your financial groove back
Read: 5 minutes
In your 30s and 40s, it's common to focus your attention on your career and family, letting your long-term retirement plans take a back seat to your daily obligations. But once you hit your 50s, it's time to kick your financial fitness up a notch to prepare for the next phase of life.
Here are five ways to start:
1. Dump your debt
Like most Americans, Paquita Robinson, 57, has had issues with debt. But not anymore.
“The biggest thing I've done is reduce my debt and keep it to a minimum because now my bills are manageable," says Robinson, who lives in Evans, GA.
To get her finances under control, Robinson began using cash whenever possible, restricting her use of loans and credit cards to the bare necessities, and consciously analyzing every expense.
But Robinson hasn't been able to completely stay away from credit. In November 2017, for example, she got her first car loan in over twenty years. However, instead of buying a brand new car, she chose a year-old model and was able to pay less than half the car's original listed value. She also put down a very large down payment and was able to keep her monthly payments low. Now, she has a reliable car, a comfortable cash flow, and a budget she can live with.
2. Boost your retirement readiness
While your retirement may be a decade or more away, experts say that people in their 50s should have already saved about five times their salary. Unfortunately, most people fall short of that goal: the average savings level for 50-somethings is just $124,831.
If you're facing a potential shortfall, commit to ramping up your retirement contributions in your 50s. The IRS allows workers age 50 and over to contribute up to $25,000 a year tax-free to their workplace 401(k) plans. Do this for a decade, and you'll wind up with another $349,291 in your nest egg, assuming a modest 6 percent return. You might even get a matching contribution from your employer, which will further grow your savings.
“ I always put the most I could into my 401(k) because it decreased the taxes I paid and I received a match," says Robinson. “It's like getting free money."
3. Maximize your earning power
People in their 50s are often in their peak earning years, which makes it the ideal time to maximize your earning power. Ask for that raise at work. Put in overtime hours. Start a side hustle or maybe even take on a part-time gig. In short, do whatever you can to pad your income and give yourself room to handle emergencies down the road.
Robinson worked for 35 years as a pharmacist, but she recently quit her job and is now starting a healthcare business. She's not alone: “Older people are actually among the fastest growing groups of entrepreneurs in America," says Barbara Weltman, President of Big Ideas for Small Businesses, a provider of tax, legal and financial information for small businesses and independent entrepreneurs.
“It makes a lot of sense when you think about it: those 50 and older usually have a lot more experience to bring to the table." Weltman says. "Plus they often have the capital to get started, without having to scrounge around for money to get going." A recent MIT study backed this up: it found that the mean age of the most successful startup founders was 45...and that the rate of success rises sharply with age.
4. Downsize your housing costs
Housing and related costs eat up a huge chunk of many people's monthly budget, so you might consider downsizing to a smaller house, particularly if your children have left home. In addition to your mortgage or rental payment, big homes cost more money to furnish, and often have bigger utility bills.
While you're downsizing, consider moving to a cheaper part of the country. If you're in an expensive city, like New York or Miami, think about moving to one of America's top "bargain cities," like Austin, Phoenix or Houston. Or, alternately, think about moving to the suburbs or the country, where your housing dollar will go a lot further. By putting down roots in a less expensive region, you could set yourself up to save more—and live better—after retirement.
5. Cut the financial apron strings
According to a recent study, 40 percent of young adults between the ages of 21 and 24 receive significant financial support from their parents, totalling an average of $3,000 per year. To better position yourself for your 60s, you'll need to eliminate—or at least greatly reduce—your spending on others, especially your adult children.
At this point in your life, it's crucial that you help your children develop financial independence—both for their sake, and for yours. Continuing to help pay for their cell phone, car insurance or rent will chip away at your own monthly budget, and greatly reduce the cash you have available for savings. Have a conversation with them and work out a 6-12 month transition plan in which they will assume full responsibility for their own financial obligations.
Helping your children to reach their financial adulthood will clear the way for you to approach the next stage of your own financial development. Combined with added retirement savings, streamlined housing costs, and lowered debt, you could be in a comfortable position for retirement—and beyond.
Lynnette Khalfani-Cox is a Chase News contributor. Her work has appeared in The Wall Street Journal, among other media outlets.