One of the important financial tasks that we need to look into is how we can prepare for retirement. The older we get, the more we should be conscious about our financial situation. After all, we are nearing a time in our lives when we will stop working and enjoy our prime years. If you want to live a comfortable life, you have to make sure that you have enough funds to support your various retirement activities.
When you are in your 50s, it is the best time to evaluate your financial position. You may need to spring clean your finances to check the areas that require improvement. You still have your career and an opportunity to increase your wealth. You still have a decade or so to prepare for retirement. Use this time wisely because once you reach your 60s, it might be too late to do anything to get yourself ready to retire. If anything, you should already be putting the finishing touches to your retirement plan. If you find problems that will compromise your retirement money, it might be hard to recover.
The statistics are showing signs that the retirement confidence of American workers seems to be high. According to the data published on EBRI.org, retiree confidence increased to 39% in 2016. From 18% in 2013, 39% said that they are very confident this year. Only 12% said that they are not confident, which actually went down from 14% in 2013.
In case you find yourself in a position of high financial confidence in your 50s, it is still important to take a look at your finances – specifically your retirement money. You do not want to discover problems when it is already too late to solve them.
7 financial habits that will help you get ready for retirement
Fortunately, there is enough time to prepare for retirement when you are still in your 50s. You just have to implement the following financial habits.
- Increase your savings.
When you are in your 50s, you should think about increasing your savings – specifically your retirement fund. At this point, your kids would already be off to college or building their own careers. You have fewer expenses to worry about. This is the perfect time to increase your contributions so you can aggressively grow your nest egg. You still have at least a decade to make the compound interest work in your favor.
- Live frugally.
You are not going to be cheap. On the contrary, you will be focusing on the important expenses and you will stop wasting money on things that are not necessary. Just think about what you really need to sustain the lifestyle that you want to have. Be practical and realistic. Try to keep yourself from looking at the Joneses because you might be tempted to compare your finances with theirs. That is not really a good idea. Focus on your own needs and save as much as you can from your expenses.
- Aggressively pay off debt.
According to a study done by CreditCards.com, Americans believe that the average age that they will be debt free is 53. If that is true, then you need to work very hard in order to be a part of this statistic. Make sure you aggressively pay off your debt so it will not be a burden to your retirement money. There are debt relief options like debt management or debt settlement that can help you pay off your balance in 5 years or less. Educate yourself and know your options so you can choose the right debt solution that fits your financial capabilities and goals.
- Get rid of your mortgage.
There are a couple of ways that you can do this. One is to talk to your mortgage lender and come up with a repayment plan that will help you pay off the balance at a shorter time. This will not only get your debt freedom faster, it will also allow you to save on the interest payments. The second way to get rid of this mortgage is to sell your home and just buy a smaller house that you can pay with the cash that you will get from the sale. Make sure the next house you will buy has the same value as the equity of your old home. That way, you still own your house but you no longer have to worry about mortgage payments.
- Avail of as much tax break as you can.
The fifth financial task that you need to attend to so you can prepare for retirement will involve tax breaks. You have to maximize your tax breaks so you can lower your taxes. Most of the workers in their 50s are usually at the peak of their career. That means you are already in the highest tax bracket that you can have. Minimize your tax obligations by identifying the areas in your life that can qualify for tax breaks. For instance, your retirement savings can be used or health care bills. These can help you take home a bigger percent of your income.
- Downsize your lifestyle.
We previously mentioned that when you reach this age, your kids are probably out of the house already. That means you have too much space at home. You may want to consider downsizing your lifestyle so you can lower your expenses. This will help you get rid of the mortgage – as discussed in a previous financial task. It will also help you get ready for the lifestyle that you will adapt when you retire. Since you are only in your 50s, you have a lot of time to experiment with different lifestyles. That way, you can easily choose one that will fit your retirement goals.
- Plan your Social Security.
Finally, you need to think about how you will get your Social Security benefits. You can choose to claim your benefits late (e.g. 70 or older), you can enjoy bigger monthly payments. Of course, if you will choose this, you either have to postpone retirement or you need to set up another source of retirement income. Think about how you can maximize your benefits to ensure that you will not outlive your retirement money.
Ideal status of your retirement plan when you reach your 50s
Retirement may seem like a long way off but when you are in your 50s, it is not as far as you think. You cannot prepare for retirement in a few years. You need at least a decade to put your retirement plan in place. At least, this is true if you want to live a comfortable life when you retire.
According to an article published on Investopedia.com, the estimate median savings of a person in their 50s should already be 4 to 5 times your annual salary. If you are earning $50,000, you should have saved at least $200,000. If you do not have this amount in your account, you need to seriously sit and think about how you can reach your retirement goals.
If you need to aggressively work on your retirement money, there are two things that you can do.
Lower your expenses.
Obviously, you have to lower your expenses so you can free enough money to contribute towards your retirement savings. There are so many ways to lower your spending without restricting your lifestyle. You just have to focus on what is important to you. For instance, if you love spending time outdoors, you can downsize your home drastically. There are so many ways to live on less if you are determined to cut back on your spending to prepare for retirement.
Increase your income.
Another thing that you can do is to increase your income. While spending less is great, it will only give you limited savings. When you focus on increasing your income, there is no limit to how much you can add to your retirement money. As long as you can work, you can earn more. Of course, you have to take into consideration your capabilities and give yourself enough time to rest. But if you can set up a lot of passive income sources, it is possible for you to enjoy higher earnings without putting too much effort into it.
If you are running out of time to prepare for retirement, you may want to consider doing both – cutting back on expenses and increasing your income. That way, you can maximize your retirement savings so you can grow your money before you retire.