Where do you stand, financially speaking, compared with your peers?
“Our brains are comparison machines, always tuned in to relative differences,” says social psychologist Heidi Grant Halvorson, coauthor of Focus: Use Different Ways of Seeing the World for Success and Influence.
Trouble is, comparing can get discouraging. So don’t get hung up on what might have been. Instead, Halvorson says, “look at people who are doing it right — or at least better. Don’t think ‘How good am I at this?’ Think ‘How can I get better?’ ”
The tips on the next pages will help you do just that, walking you through the big financial questions you’ll face in the next 10 years of your life. It’s a pocket guide to your money in your 50s: how to maximize your income, rethink your investments, spend smarter and save more, starting right now.
Photo by Brad Trent
AARP Financial Ambassador Jean Chatzky
Financial expert Jean Chatzky is a regular contributor to AARP The Magazine and AARP.org. Read Jean's articles, watch her money tips videos and learn more about how to save more and spend less at aarp.org/jeanchatzky.
The Plan for What You Owe (and Own)
The Plan For What You Make And Save
1. Upsize your income
Yes, these are supposed to be the prime earning years. If your current paycheck isn’t living up to its end of the bargain and a raise isn’t likely this year, think about adding part-time work: Even modest income gains at this point add up over time.
Say you started investing an extra $200 a month in a diversified portfolio earning 8 percent annually. By 70, that could be over $100,000 in your retirement coffers.
2. Boost your brand
Only a third of employees used career-development benefits and training, according to the “Cornerstone OnDemand 2013 U.S. Employee Report.” That’s a huge missed opportunity, especially at this age.
The Plan For How You Invest
1. Run the numbers
To see if you’re on track, put a retirement calculator through its paces (try AARP’s at aarp.org/retirementcalculator).
Even simpler is this handy rule of thumb that Fidelity developed. By age 50 you should have saved four times your current income; by 55, five times. And to retire, you should have eight times your preretirement income.
Among the assumptions behind these figures: You’ll get a 1.5 percent raise and grow your portfolio by 5.5 percent annually, retire at 67 and live to 92. It also assumes replacing 85 percent of preretirement income.
1. Enroll in Tuition 101
If you’re sending a child to college soon, note that a year at a four-year college averages about $22,000, more than twice the average a few decades ago.
To avoid sabotaging your retirement, says Maryland financial planner Tim Maurer, study ways to bring costs down. Mix two years at a community college and two years at a state university; apply for financial aid and scholarships; float the idea of living at home.
“If you live at home and go to a state university, you can get a four-year degree for the cost of the first semester at Harvard,” Maurer says.
2. Reimagine your life (insurance)
Maybe you’ve had the same life insurance since you bought your first house or had a baby. Now your mortgage is almost paid off and that baby is 6 feet 2. It’s time to think about how much longer you’ll need the coverage. If it is more than a few years (or beyond the expiration of your current level term policy), you might want to act soon, says Stephen Rothschild of the LIFE Foundation.
The younger and healthier you are when you shop for a new 10-year or 20-year level term policy, the better the rate. If you’re no longer healthy or want to keep the coverage forever (perhaps to provide for a special-needs child), look into converting your current term life coverage to whole life, which is more expensive but includes an investment component; no new physical will be required.
To better judge your needs, run your numbers though a life insurance calculator, such as the AARP Life Insurance Calculator.
3. Look long-term
Considering long-term care insurance? Buy it now. These policies can work for people worth more than $500,000 (not including a house) — which is too much to easily spend down to qualify for Medicaid, but less than the $3 million it would take to fund their own continuing care.
You’re less likely to be rejected for health reasons if you apply now. Premiums will be lower, too: Think at least $150 each a month for a couple at 50 for a policy that pays $200 daily for three years, with inflation coverage. The median cost of a year of nursing-facility care is now $76,000; in 30 years it could be $300,000.
Jean Chatzky, AARP’s financial ambassador, is a best-selling author and an award-winning personal finance journalist. With additional reporting by Arielle O’Shea.
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