Recently, I had the opportunity to experience something really special. Several of my college roommates were turning 50 years old, and there was a multiple person birthday gathering in Washington, D.C. that I attended. As we reminisced about the good old days in college and I watched their children run around (most of them six to eight years old), it occurred to me that my very own friends are going to be starting down the backstretch towards retirement. It’s hard to imagine that for some of them they will be 65 years old when their kids either get into college or graduate college, so does this mean they will take a different path to retirement?
Either way, there are smart money moves you should be making when you turn 50. I know this first hand because the two co-founders of oXYGen Financial (Kile Lewis and myself) both turn the age of 50 this year. While we started oXYGen Financial to represent our generation and the next one coming, we’ve found that whether people are 22 or 72, they absolutely love the way we do business. We are now in four cities, have thousands of clients, and more than a billion dollars under advisement – so we know a thing or two about planning our finances. Here are five smart money moves to make when you turn 50:
- It’s Time To Catch Up- There are quite a few good things about turning the age of 50, and one of them is that those who want to save more for retirement, get a special tax break from Uncle Sam. These are called ‘catch-up’ provisions and they allow you to put more money into your 401(k), 403(b), IRA’s, etc. This may be the most powerful savings tool you do for retirement at the age of 50.
Here in 2019, you can put away up to $19,000 pre-tax in your 401(k) or 403(b) plans, but if you turn 50 at any time during the 2019 calendar year, you are eligible to put away $6,000 more as a catch- up in your 401(k) plans. If you are saving money in IRA’s, you would normally be able to put away up to $6,000, but the catch up now allows you to put away an additional $1,000 within your IRA. For those of you who own a small business and have set up a SIMPLE IRA, there are catch up provisions in those plans as well.
- Closely Examine Your Mortgage Situation- Depending on what age your children are, the housing situation could be challenging to figure out over the long term. Some 50 year olds are seeing daylight and thinking about whether their empty nester home will be in the city, the mountains, or at the beach. Or maybe some of all of that! For those 50 year olds who just had kids recently, you still might be thinking about what school districts you want to be in or considering an area that will be good for raising kids.
The harsh reality you need to contemplate is how long you think you will be able to earn the same income you are earning today, and how that will work with the timing of paying off your mortgage. I paid mine off years ago, and I still think no matter where interest rates are there is something very comforting about driving home and knowing that your house is done and done. This is the time with interest rates being low that you might consider going to a 15 year note or looking at the numbers of your current 30 year note to see how to pay it off in 10 or 15 years, depending on your overall retirement plan. The biggest concern is if you take a new 30 year large mortgage today, ask yourself how you will pay that off when you no longer are making the same income you are making today.
- When Will the Kids Be Off of Payroll?
Depending on the age of your kids, you really need to assess the balance of what you want to do for assistance with college education and your desire to make a work optional plan. Do not underestimate (no matter how tough you think you are going to be), how much emotional pull there will be to actually help your kids. I’ve heard parents that say, “I’m only going to give my kids a head start of $10,000 a year.” However, when their children get into a top school, they begin to figure out other ways they can help fund their kids dreams. I’ve seen this time and time again, so have a realistic conversation about what this is going to look like.
For the aftermath of college, consider whether you will let them live at home or not, and for how long that will persist. How long will you pay for their mobile phone? Their auto insurance? Their health insurance? All of these questions will help you better determine your overall run rate as you approach retirement. And don’t forget if you have daughters (and sons), there is probably going to be something down the road you’ll have to come out of pocket for if they get married. I recently saw one that was well over six figures out of the parent’s pockets!!
- Consolidate- For the first 30 years of your adult life, you’ve probably acquired more stuff than you imagined. There is at least one or two collections in your house that you haven’t looked at or touched in years. There are countless numbers of boxes of pictures, cards, awards, and other family related items spread throughout the house. You’ve got closets of clothes and pieces of old luggage in your storage closet. Is it time to do a purge and see what you really need?
That’s the physical part of what you have collected. On the financial side, you might be carrying four or five credit cards, a checking account(s), savings account(s), credit union account(s), various old 401(k)’s, several brokerage accounts, and other financial instruments you have purchased over the years. If the accounts are in many different places, are you really gaining an advantage by having all these accounts? Are there some strategies that just aren’t working? Are you tired of trying to figure out where everything is and how it is actually performing? This is a great time to consolidate and get your financial house in one or two places.
- Review Your Insurance- Especially Long-Term Care- You are probably thinking 50 is the new 30, right? Wrong! 50 is actually 50 and whether we like it or not, the aches and pains and signs of aging are starting to happen. At this point you might be fully grey or seeing signs of grey. You might be using reading glasses (100% in a dark restaurant reading a menu). You might notice the knees don’t work exactly as they used to or your lower back has just a bit more pain than it once did ten years ago. This is the year you will get all the big physicals and have your colonoscopy (ugh!). But it’s super important before it gets too expensive to review if you need long term care insurance or if you need to adjust and get more life insurance or disability insurance for the stretch run.
When do you really know that 50 is 50? When you start managing people and making references to 1980’s movies or music that are now considered classics! Turning the big 5-0 can be a lot of fun, but will be even more fun if you know that your financial house is in order. Use these five money moves and create a plan that will help you make work optional!