Financial Advice: Money Strategies For Your 50S

Evaluate your retirement assets and expenditures to assess what changes you need to make.

Money strategies in your 50's revolve around preparing for retirement. In fact, at age 59 ½, you can begin making penalty-free withdrawals from your retirement accounts like 401(k)s and IRAs. Ensuring that you will have sufficient assets to retire and adjusting your retirement portfolio accordingly are important considerations guiding your financial planning decisions.

As you prepare for retirement, you have the opportunity to contribute more to your 401(k) and IRAs once you turn 50. Congress permits catch up contributions that exceed the regular annual contribution limits for retirement plans once the account holder is 50 years of age or older. Taking full advantage of your peak earning years to increase your retirement savings will benefit you in retirement.

Reviewing your asset allocation as you approach retirement is also important. You still have many years ahead of you, so you will want to maintain significant exposure to stocks. Stocks are the only asset class that has consistently outpaced the purchasing power eroding effects of inflation. However, you may want to begin reducing your stock allocation in favor of bonds to generate current income for retirement and to reduce your portfolio's overall volatility.



Another aspect of asset allocation that should not be overlooked is ensuring that you have adequate cash reserves. Having to sell long-term investments during a market downturn to meet an unexpected expense can devastate your retirement savings. Having adequate cash on hand, although it lowers your investment returns, gives you the flexibility to leave your long-term investments in place to ride out market fluctuations.

Reducing debt is also important as you prepare to retire. Most debt, especially credit cards, charges such high interest rates that your investment returns cannot consistently overcome them. The compounding effect can rapidly overwhelm your retirement portfolio. Therefore, eliminating high interest debt is critical to allowing your retirement assets to accumulate. Paying off your mortgage early may also be sensible. In the later stages of a mortgage, only a small portion of your payment is designated as interest. This means that very little of your mortgage payment is tax deductible. You may get a better return on your money by reducing your interest expense by paying off your mortgage early than you would achieve through an investment. Moreover, the return from paying off your mortgage is risk free. This is more beneficial if your mortgage has a high interest rate.

This stage in your life is also a good one for evaluating purchasing products to protect your retirement assets. Long-term care insurance is easier to acquire and less expensive if you purchase it while you remain in good health. This type of insurance ensures that your retirement assets will not be depleted if you require significant medical assistance in the future. In the event you elect to retire in your 50's, purchasing an annuity may also be sensible. An annuity assures you a stream of income for life as long as the insurer remains solvent. This guarantees that you will not outlive your retirement assets and is particularly well suited for individuals who are uncomfortable with managing their assets in retirement. You may be able to generate greater returns through your own investing, however, and an early death results in the loss of your investment without any return.

Preparation for retirement dominates financial strategies for your 50's. Evaluating your likely retirement assets and planned expenditures is valuable for assessing your position and what changes, if any, you need to make to your savings rate, asset allocation, and planned retirement date. Being aware of your financial position and planning accordingly is the best way to ensure that your retirement plans are realized.

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