Top 5 Financial Moves to Make Before Turning 50
Your 50s mark a significant life milestone, especially in terms of financial security. Here are the top financial strategies to consider as you approach this important age, to ensure financial stability and wealth for the future.
Turning 50 is a powerful milestone that often sparks deeper reflection about the future, especially when it comes to finances. In your 40s, life is often a blend of family commitments, career growth, and personal goals, but as 50 approaches, planning for retirement, freedom, and security takes center stage. Here are the top five financial moves that can make a lasting impact as you near this age. Taking these steps can help you secure your future, optimize your investments, and live with greater peace of mind.
1. Boost Retirement Savings Aggressively
If you haven’t prioritized retirement savings yet, now is the time to go all-in. Hitting your 50s without a robust retirement plan can cause stress, but it’s never too late to make a meaningful impact. Experts recommend contributing as much as possible to retirement accounts, like a 401(k) or an IRA. In fact, once you turn 50, you’re eligible for “catch-up contributions,” which allow you to contribute an extra $7,500 to your 401(k) and an extra $1,000 to an IRA annually.
Increasing your retirement contributions is about more than just meeting a target number. It’s about building enough assets to allow for the lifestyle you envision. Calculate your “retirement number”—the amount you’ll need to live comfortably—and adjust contributions accordingly. And if you have employer matches, make sure you’re maxing out this “free money.” Every contribution counts, and the sooner you increase them, the more your savings can grow thanks to compound interest.
2. Pay Down High-Interest Debt
Entering your 50s with substantial debt, especially high-interest credit card debt, can significantly impact financial security. High-interest debt not only eats away at your disposable income, but it can also impede retirement planning by reducing the amount you can set aside. Start by prioritizing debts with the highest interest rates, as they cost you the most.
Strategies like debt snowball or debt avalanche can help you systematically eliminate debt while keeping motivation high. Debt snowball involves paying off smaller balances first to build momentum, while debt avalanche focuses on the highest interest debt first, which is more cost-effective in the long run. Reducing or eliminating high-interest debt can also improve your credit score, which may help lower insurance rates and improve terms on loans should you need them.
Remember, the goal isn’t just to minimize monthly payments—it’s about reclaiming your financial freedom. Use any bonus income, such as tax returns or work bonuses, to make extra payments on your debt. By tackling debt now, you free up more income for savings, investments, and the lifestyle you envision for the years ahead.
3. Diversify and Rebalance Your Investment Portfolio
Investments are the backbone of building wealth, especially as you get closer to retirement. By the time you’re 50, your portfolio should be balanced to reflect both your age and financial goals. The right mix of stocks, bonds, and other assets will vary for everyone, but diversification helps protect your savings from market volatility and economic downturns.
If you’ve held onto an aggressive, stock-heavy portfolio in your 40s, consider gradually shifting some assets into safer, income-generating investments. For instance, you might start to increase your allocation in bonds or dividend-paying stocks, which typically offer more stability. Rebalancing your portfolio annually or after major market shifts ensures that it remains aligned with your risk tolerance and retirement goals.
Additionally, review fees in your investment accounts, as high fees can erode your returns over time. By lowering fees and adjusting asset allocation, you can keep more of your earnings and move closer to a financially secure retirement.
4. Update Your Estate Plan and Insurance Coverage
Approaching 50 is also a time to reassess how well-protected you and your loved ones are. Estate planning and adequate insurance coverage provide a safety net and make sure your legacy aligns with your wishes. A well-thought-out estate plan includes updated wills, trusts (if needed), and healthcare directives. These documents ensure that your assets are distributed according to your wishes and can prevent family disputes in the future.
As part of your estate planning, review beneficiaries on retirement accounts, life insurance policies, and other assets. Circumstances change, and you may want to adjust beneficiaries due to marriage, divorce, or the birth of children or grandchildren. Keeping your estate plan current prevents complications and provides peace of mind.
In addition to estate planning, re-evaluate your insurance coverage. Health, life, and long-term care insurance should be considered carefully at this stage. Long-term care insurance, in particular, can protect your savings from the high cost of medical or personal care services in later years. These coverage plans can prevent you from draining your assets and ensure that any care you need won’t become a financial burden on your family.
5. Plan for Health Care Expenses
Health care is one of the largest expenses retirees face, and planning for it can prevent future stress. While Medicare provides substantial support, it may not cover everything, so it's wise to set aside savings for additional medical costs. A Health Savings Account (HSA), if you’re eligible, offers tax advantages and can help fund healthcare expenses both now and in retirement. Unlike traditional savings, HSAs allow you to set aside pre-tax dollars, which can grow tax-free and be withdrawn tax-free for qualified medical expenses.
The sooner you start saving for future health needs, the less financial strain you’ll face when they arise. Studies show that retirees can expect to spend hundreds of thousands on health care costs in retirement, which can make a significant dent in savings if unprepared. With an HSA, funds can be carried over indefinitely, making it a strategic tool for covering medical costs in retirement.
Final Thoughts: Embrace Financial Preparedness
By making these five financial moves before you turn 50, you’re setting yourself up for a future filled with financial independence and security. The journey to financial freedom is a marathon, not a sprint. Each step, from boosting retirement savings to preparing for health expenses, brings you closer to a comfortable, worry-free retirement.
Taking charge of your financial future means more than numbers on a page; it’s about crafting the life you want to live post-retirement. These financial strategies aren’t just about surviving—they’re about thriving. Embrace these moves as investments not only in your wealth but in your peace of mind, ensuring you’re prepared for whatever life brings in the next stage of your journey.