Preparing for Retirement: What to Do in Your 40s and 50s

Having just turned 50, retirement now seems to be not only a dream but an impending reality. Whether I choose retirement or, through unforeseen circumstances, retirement chooses me, there are still steps I can take today in preparation. Here are four suggestions.

Max out your 401(k)
First, assuming you are employed, maximize any company-matching opportunities in your 401(k) plan or other employer-sponsored plan. Even at dismal interest rates today, and scary stock market conditions, any employer contribution is “free” money, adds money to your fund, and enhances your return. Aligned with maximizing your company-match, maximize your own contribution, even if it cuts into your lifestyle. Cutting out the non-fat latte everyday was a good start for me. I have now moved into packing my lunch most days and avoiding clothes that require dry cleaning. I have really seen my own retirement balance increase this year when I was able to add additional contributions since turning 50.

Review your portfolio
Second, review your investment portfolio. The investments you have chosen should be consistent with your risk appetite and your retirement timeline. If you plan to retire in the next 10-15 years, like me, you would be wise to consider that an aggressive portfolio might result in losses that you do not have years to “earn back.” Make sure to employ some strategies that will increasingly preserve principal as you approach retirement, understanding that you also probably will not be rewarded with double-digit returns again any time soon. Many plans include “lifestyle” funds that increase the mix of bonds and less-risky investments as the plan participant ages. But do research and ask your employer for resources to help you plan. Often investment advisors are available through your employer for free or at a reduced rate.

Take a look at your mortgage
Third, examine your mortgage and current home plans. If you own your own home, how long do you plan to live in your home? Is it the size you can maintain into retirement? Review your home equity position and your mortgage terms. Should you refinance the mortgage and conserve monthly cash flow? If you plan to downsize like I do in the next 5-10 years, consider a mortgage that has a low fixed rate for 5 or 7 years followed by yearly adjustments. Keep in mind that the 5- or 7-year fixed term aligns with a plan to sell the house before the mortgage becomes adjustable (or you will want to refinance the mortgage before it becomes adjustable). Rates on these 5/25 or 7/23 mortgages are currently in the low-to-mid-3% range.

If you rent, assess the current size of your home and consider your current lease terms. Can you sign a longer term lease to ensure your rent will remain fixed for a longer period of time? Should you consider a smaller unit or another community that might be more accessible to cut down on transportation costs? What about the safety and security of your unit?

Update your will
Finally, review your insurance and will. Term insurance might be useful while you have dependent children, but into your 50s, you likely have children who are increasingly self-sufficient. Size your policy to pay for things like your funeral (or even prepay your funeral) and your debts, depending on your own liquid net worth. Cancel needless policies and reduce coverage. In addition, understand any benefits that will be available to you from your employer after retirement. For example, state and municipal employees often have pension and health plans beyond their retirement date. Begin to investigate health care supplement plans and options as you approach the day you will no longer work. In addition, make sure your will is updated. As part of your will update, designate a health care power of attorney and documented directions in case you are incapacitated. I know our attorney prepares the three documents together for a set fee. Family members know where important papers are kept and who to contact should the need arise.

It is not too late to make plans for retirement in your 40s and 50s. Four easy steps can help you prepare for the day you no longer work and can make a difference in your years in retirement living.


People also view

Leave a Reply

Your email address will not be published. Required fields are marked *