In this segment from Motley Fool Answers, Alison Southwick and Robert Brokamp break down a proper investing and retirement strategy by decade. Now in your 50s, your career is leveling out. You have a lot of life experience to guide you, and retirement is looming over the horizon. The Foolish advice for this decade is clear: Take full advantage of the higher limits on your tax-advantaged retirement accounts; don't waste the extra cash you have now that the kids are paying their own way; and really start doing some advance calculations about what you're going to need in retirement. The team also warns of a money mistake people make in their 50s that is becoming increasingly common.
A full transcript follows the video.
This podcast was recorded on April 18, 2017.
Alison Southwick: Your 50s are an exciting time. You're reaching cruising altitude in your career. The kids, who also work in your office, perplex you, but that's fine if they think you're the old, wise one in the office because you've learned the coolest thing you can do in life is not care what other people think about you. I'm looking forward to my 50s, I think, for that reason. So what should be your priorities in your 50s?
Robert Brokamp: Well, it's the time to do some great retirement saving.
Southwick: I said it was an exciting time.
Brokamp: So take advantage of the higher retirement account contribution limits. For example, this year if you are not 50 and older, you can only contribute $18,000 to a 401(k) or $5,500 to an IRA. But if you're 50 or older, you can put an extra $6,000 into the 401(k) and an extra $1,000 in the IRA. So take advantage of that.
Number two is take advantage of the extra money you have since the kids are out of college and out of the house. I've talked to many subscribers to my Rule Your Retirement service about how surprised they were at how much money they had once the kids were gone. But the problem is some people then use that money to buy a second house, or a boat, or something. And if you're behind in your retirement savings, what you should be doing is really getting it into your retirement accounts.
And number three, take a good hard look at your retirement projections. I'm a big fan of retirement calculators, but honestly if you're using them in your 20s and 30s (and maybe even your 40s), there's so many variables that you have to guess at they're probably not going to be totally accurate. But once you're in your 50s, you really have to start looking at whether you're on track and a good retirement calculator can actually get a relatively accurate projection of whether you're headed in the right direction.
Southwick: And how much should you have saved?
Brokamp: Around age 50, maybe five to six times your household income. Once you're in your mid-50s, you really want to be 6 to 7 times.
Southwick: And what's a mistake to avoid?
Brokamp: I would say ignoring debt. One trend that we've seen over the last few decades is people entering retirement with more debt. So according to the Federal Reserve, back in 1989, only 11% of people in the 65 to 74 age group had a mortgage. Back in 2013, that was 43%. So almost half of people 65 and older having a mortgage.
I've talked before on previous episodes how I think it's a great idea to go into retirement without a mortgage or car loans, or any other kind of debt because it lowers your expenses. You don't have to take so much out of your retirement account once you get into your 50s, especially when you're supposed to be playing it a little safer with your portfolio. The safe investments these days are cash and bonds, which no one likes. Use some of that money that would be considered "safe money" to pay down debt.
In the April 18 episode of Motley Fool Answers, Alison Southwick and Robert Brokamp break down good investment and financial strategy for our listeners by life-decade. In this segment, they talk about our 50s: Your career is probably leveling out, you've got a lot of life experience to guide you, but you can see over the horizon that retirement is looming. Brokamp's advice for this life stage is pretty clear: Take full advantage of the higher limits on your tax-advantaged retirement accounts; don't waste the extra cash you have now that the kids are paying their own way; and really start doing some advance calculations about what you're going to need in retirement. He also warns us against a money mistake people make in their 50s that is becoming disturbingly more common.
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