1. Leverage All of Your Savings Options
While a 401(k) (or another employer-sponsored plan) is a good first stop for retirement savings, it’s not the only way to build your nest egg. Once you’ve maxed out your employer’s retirement account, you can supplement it with an IRA.
For 2016, the regular contribution limits for a 401(k) and IRA are set at $18,000 and $5,500 respectively. If you’re 50 or older, however, you get a bonus in the form of catch-up contributions. That means you can funnel an extra $6,000 into your 401(k) and another $1,000 into your IRA.
In addition to these two options, you have another way to save if you have a high deductible health insurance plan. You can save up to $3,350 in a health savings account (HSA) if you have an individual plan and $6,750 if you have a family plan. Once you turn 65, you can tap this money penalty-free, although you will pay taxes on any distributions that don’t go towards qualified medical expenses.
2. Be Strategic About Paying Down Debt
Carrying credit card balances, student loans or mortgage debt into retirement is a risky move, especially if you know that your income is going to go down once you’ve stopped working. In your 50s, it’s best to focus on eliminating as many of your financial obligations as possible so you can head into your golden years with a streamlined budget.
That being said, there are some rules to follow when it comes to paying off debt. Before you begin making your monthly payments, it’s important to make sure you’re maxing out your retirement accounts. At this stage in life, you can’t afford to delay your savings.
While you’re paying down your debts, you can tackle the ones that are costing you the most first. Then you can look for ways to make your other payments less expensive. If you have credit cards, for example, transferring them to a card with a lower rate can potentially save you some money on interest. If you’re thinking of refinancing your mortgage, it’s best to run the numbers to get an idea of what you can save.
3. Manage Risk Carefully
Putting your money in a savings account may give you a sense of security but it’s not going to make you rich. Investing in stocks and mutual funds means taking a bigger gamble, but it can generate substantial returns in the long run.
If you’ve been fairly aggressive about investing up to this point, you may need to rethink that strategy. Someone who’s in their 30s and has years to go before they retire is in a better position to rebound from a market decline than someone who’s in their mid-50s.
That’s why it’s a good idea to take a look at your portfolio’s asset allocation to see where your money is concentrated. If you’re still investing heavily in stocks, now’s a good time to begin easing towards more conservative investments. You may see your returns reduced slightly but the trade-off is that you’ll be better insulated against market volatility.
Building wealth is something just about anyone can do with enough time and the right tools. If you’re in your 50s, your retirement is probably not too far away. But it’s not too late to create a comfortable financial cushion for your 60s and beyond.
If you’re not sure how to get started or you need some more guidance, consider working with a financial advisor. An advisor can help you identify your financial goals and determine the necessary steps to reach them. A matching tool like SmartAsset’s SmartAdvisor can help you find a person to work with to meet your needs. First you’ll answer a series of questions about your situation and goals. Then the program will narrow down your options from thousands of advisors to up to three registered investment advisors who suit your needs. You can then read their profiles to learn more about them, interview them on the phone or in person and choose who to work with in the future. This allows you to find a good fit while the program does much of the hard work for you.