In Your 50s and Seeing Retirement in the Distance? What You Do Now Can Make a Significant Impact

Your 50s can be the perfect time to reflect on your life and to think deeply about what's still to come, especially as it relates to retirement.

Individual situations vary, of course, but generally, your 50s serve as a pivotal decade. You're finished raising the children, or nearly so. You're possibly in the middle of your peak earning years, which typically occur from ages 45 to 54. You're still young enough to engage in an active lifestyle.

For most people, their 50s are also when retirement appears on the horizon, even if it remains distant enough to be hazy. That makes this an opportune time to assess whether you're on track with your retirement planning and determine what steps you need to take if you aren't.

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Small adjustments now can result in a significant impact later.

Increase your savings

Something those in their 50s might discover is that the balance in their retirement savings isn't at the level they want.

They look at the bottom-line number, weigh it against a retirement that could last decades and worry that they might run out of money.

Instead of fretting, take action

One thing you can do is to increase the percentage of your paycheck that you contribute to your 401(k). At a minimum, you want to contribute at least enough money to get the full match from your employer.

You aren't limited to just matching it. Individuals are allowed to contribute up to $24,500 per year, and those age 50 and older can make an additional catch-up contribution of $8,000 per year.

Your 50s are also a good time to consider Roth conversions if you have money in tax-deferred accounts, such as a traditional IRA or 401(k). That money will be taxed as ordinary income when you begin making withdrawals in retirement.

A Roth account, on the other hand, grows tax-free, and withdrawals are not taxed. However, you do pay taxes when you move money from your tax-deferred account into a Roth, so you want to avoid moving too much in a given year to avoid being bumped into a higher tax bracket.

The long-term tax advantages of a Roth conversion will outweigh the taxes you pay now, and if you're in your 50s, you have plenty of time to begin moving the money over before retirement.

The risk of avoiding risk

Most people understand that investing comes with some level of risk, and as you march through your 50s, it's a good time to take stock of how much risk you have in your portfolio.

Are you taking too much risk or too little? Depending on your situation, both can be a problem.

A roll-the-dice approach can place you and your retirement in jeopardy if the market takes the kind of dramatic dip it did during the 2008 recession.

You don't want to experience a major loss just as you approach retirement and start making withdrawals from your account to cover living expenses. That combination of falling value and withdrawals could quickly deplete the account.

Conversely, if you try to reduce your risk to nothing, or at least almost nothing, your portfolio could fail to keep up with inflation, meaning that your dollars will lose value. That's not a way forward either.

A couple who had more than $1 million between them once came to me, but almost all their money was in fixed-interest accounts. They were averaging a return of perhaps 3%, so we discussed finding ways to be more aggressive with a portion of their money to improve the return.

Finding the right risk balance will involve taking into account your age, when you plan to retire, your financial goals and your risk tolerance.

Like many financial professionals, our firm uses software to assess clients' risk tolerance. The software assigns them a score, then we build a plan around that.

Have you saved enough?

As you examine your portfolio and think about when to retire, you might ask yourself a key question: Have I saved enough?

If you're searching for a magic retirement savings number, you won't find it. There is no one-size-fits-all answer to how much money you need. Instead, this will depend on several factors.

One is how much you anticipate spending every month. That can vary widely. Some retirees might have a long bucket list they want to check off that involves expensive travel. Others could anticipate a more modest lifestyle.

Your 50s are a good time to run the numbers and determine how much income you'll need to cover your anticipated retirement expenses. What will be your sources of income? These might include a pension, Social Security, retirement savings or other investments.

As you look at expenses, you'll want to factor in inflation. Also, consider whether you want to leave a legacy to your children or to a charity.

Geography also makes a difference. Many people move after they retire, and that's something to consider carefully. Some states have a higher cost of living than others. Taxes also vary from state to state. Relocating can make your financial situation better — or worse.

The next step

These are just a few things to think about as you look ahead to retirement.

The good news is, you don't have to do it alone. A financial professional can discuss the options to consider based on your personal financial situation and help you make the most of this pivotal time of life.

You can then approach retirement with more confidence, ready to enjoy all that it has to offer.

Ronnie Blair contributed to this article.

The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.

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