How to Maximize Your 401(k) Money if You're 50 Years Old

There's a (not-so-old) saying that "life begins at 50," and if you're 50 years old, hopefully you're feeling more lively and prosperous than ever before. People who are reaching this age of life might be seeing their kids grow up and leave the nest. You might be reaching a higher level of success in your career with pay raises and promotions. And you might be thinking more seriously about saving and investing for retirement.

50-year-olds are in a special place of their life's journey as workers, savers, and investors -- and the journey isn't over yet. You might -- right now -- be entering your peak earning years. That's good news, but it also makes it even more important to save as much as you can for retirement. If your salary is higher than ever before, you should try to save a higher percentage of it in your 401(k), traditional and Roth IRAs, and brokerage accounts.

The other bit of good news as a 50-year-old investor is that you still have time to invest for long-term growth. If you want to retire at age 65 or age 67 (your full Social Security retirement age, if you were born in 1974), your retirement is getting closer -- but it's still far enough away that you can still afford to take some short-term risks and invest aggressively in the stock market to maximize your pre-retirement return on investment (ROI).

Let's look at a few ways 50-year-olds should think about maximizing 401(k) investments to have an abundant future life in retirement.

1. Keep using target date retirement funds (if you can)

Just because you're 50 years old doesn't mean you need to act like a professional investor or day trader. Keep it simple. One of the best ways to invest for retirement at any age -- if offered by your employer's 401(k) plan -- is to use a target date retirement fund. This is a special type of mutual fund that automatically allocates your investment money into a broadly diversified range of stock and bond ETFs (exchange traded funds).

These funds give you an age-appropriate mix of investments that are designed to boost your chances of bigger growth while managing the downsides of investment risk. You get the best of both worlds -- stocks to help your money grow, and bonds to protect your money from the risks of the stock market. Your target date retirement fund will get less "risky" the closer you get to retirement age.

Here's how a target date fund might work for a 50-year-old investor with a 401(k): Let's say you want to retire at age 67 (your Social Security retirement age). That means you have 17 years left until retirement, so you should consider a target date fund with a "target" that's about 17 years away, like 2040.

The Fidelity Freedom® 2040 Fund could be a good choice for a 50-year-old investor. As of April 28, 2024, this fund is invested in:

• 54% U.S. stocks
• 36% international stocks
• 10% bonds

Right now, this fund recommends that a 50-year-old investor should be 90% invested in stocks. During the next five years, the fund will gradually sell some stocks and buy more bonds, so that its bond holdings will be 21% by 2029. By your 2041 retirement year, you'd be invested in 55% stocks, 45% bonds.

2. Keep buying (mostly) stocks

Does a portfolio consisting of 55% stocks sound like too much risk for a retiree? Everyone has a different level of risk tolerance, but a 50-year-old with a 401(k) should still be investing in a significant percentage of stocks. You still have time for your money to grow, and time to recover from potential downturns in the stock market. Just keep buying stocks, and your money will be more likely to keep growing, stay ahead of inflation, and give you a comfortable retirement.

In case you don't have a target date fund in your 401(k) plan, just try to recreate the percentages of stocks and bonds on your own. Look for low-cost index funds that allow you to buy lots of stocks and bonds in one place, like the Vanguard Total Stock Market ETF and the Vanguard Total Bond Market ETF.

3. Don't give up on the 60/40 portfolio

Not everyone feels comfortable investing 90% of their retirement money in the stock market. If you're looking for something that feels safer, you might want to try a classic investing strategy known as the "60/40 portfolio" -- 60% stocks and 40% bonds. So for every $1,000 in your retirement account, $600 should be in stock ETFs and 40% should be in bond ETFs.

Having a larger percentage of bonds in your 60/40 portfolio is also not free of risk. Bond prices can go down in the same way as stocks. But if owning more bonds helps you sleep at night and focus on your job performance instead of worrying about investing, then it can be the right choice.

Bottom line

If you're 50 years old, you still have time to save big money for retirement, and choosing the right asset allocation can help maximize your investment growth. Don't assume that 50-year-olds no longer need to buy stocks -- you should consider including a sizable percentage of stocks in your investment portfolio. Keep buying stocks in your retirement accounts to help make the most of this unique stage of your career.