En español | Reaching age 50 is a milestone that most of us celebrate. Still, after you’ve blown out the candles and bid farewell to your guests, you may have a headache from too much champagne, but otherwise feel the same as before.
Wake up! This is the time to reassess and make sure that your financial plan is in order. If you push it off until later, you may make serious mistakes that will jeopardize your future financial security.
After acknowledging this momentous birthday, Austin Frye, a certified financial planner (CFP) at the Frye Financial Center in Aventura, Florida, invites prospective clients to a financial review. With those who have done little budgeting or saving, he’s direct. “You have one last chance to put yourself on course to achieve a successful retirement,” Frye tells them. “It’s time to talk about saving more, spending less or both.”
Some folks listen, but others don’t. Following are 10 errors that Frye and other financial planners see 50-year-olds make that may, indeed, have serious consequences down the road.
1. Expecting to work past retirement age
First, how much time do you really have? Are you planning to work until age 65 or 70? Think again, says Scott Stratton, a CFP at Good Life Wealth Management in Little Rock, Arkansas. Data from the Employee Benefits Research Institute (EBRI) show that 48 percent of people retire sooner than planned, often due to layoffs, health issues or family matters. “Lose your job in your 60s, and it may be incredibly difficult to find a new one, especially with the same pay and benefits,” Stratton warns. Likewise, Andrew Houte, a CFP at New Level Planning & Wealth Management in Brookfield, Wisconsin, advises his clients to plan for an earlier retirement date. “If you work well into your 60s, it should be because you want to, and not because you have to.’”
2. Taking too much risk — or too little
At this point, some people realize that time is running out, says Mackenzie Richards, a CFP in Providence, Rhode Island. “They may do one of two things: take too much risk, often with speculative investments, or sell everything and move into cash, CDs or fixed annuities. The latter strategy could deprive them of decades of growth.” And the former could result in big losses when they can least afford them. He recommends finding a CFP who can help you create an investment strategy based on your goals, aspirations and concerns. If you prefer to control your own portfolio, then look for a planner who will work with you to create that plan, while you manage your investments. “This can be a cost-effective way to get a second opinion on your financial situation and prepare an investment strategy that keeps you from going to extremes.”
3. Ignoring the 50-plus catch-up provisions
What if you are behind in your saving? Fortunately, as a 50-year-old, you can catch up. For 2021, the IRS is allowing individuals to contribute an additional $1,000 to an IRA on top of the standard $6,000 limit. Self-employed people 50 and older with a SIMPLE IRA can add $3,000 to the $13,500 limit. If you have an employer-sponsored 401(k) you can max out your contributions by adding $6,500 over the $19,500 limit. “And while you are still gainfully employed, you can start a Roth IRA,“ adds Rafael Rubio, a CFP at Stable Retirement Planners in Southfield, Michigan. “The contribution for this year is up to $7,000 for those 50-plus.”
4. Carrying credit card debt
Paying down debt is also essential, though many people don’t do it aggressively enough, says Christopher Lyman, a CFP at Allied Financial Advisors LLC in Newtown, Pennsylvania. Ideally, you should work toward having no debt except your mortgage. Once other debts are paid off, and you are funding your retirement, then focus on paying down your mortgage. “There’s nothing like being financially independent in retirement,” he adds.
5. Taking on college debt
What about the kids? Arthur Ebersole, a CFP at Ebersole Financial LLC, in Wellesley Hills, Massachusetts, sees parents take on too much debt to fund their children’s college because they did not save enough in their 529 plans. They take out home equity loans or other debts that they may be unable to pay off before retirement. “Mortgages and college loans put a significant drag on monthly cash flow, especially for those on a fixed budget,” he says. “Instead, have your kids take loans in their names, and help them with payments as much as you can or wish to.” Marguerita Cheng, mother of three, and a CFP at Blue Ocean Global Wealth in Gaithersburg, Maryland, concurs. “Some parents are afraid to have the conversation with their student and school about the right financial fit. But you don’t want to compromise your own financial security.”
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6. Overlooking health maintenance
At this point, if you still have not established a regular exercise habit, it’s not too late, experts agree. Investing time, energy and money in your health now will help to reduce health-related expenses later, says Sarah Carlson, a CFP at Fulcrum Financial Group in Spokane, Washington. “And you’ll enjoy the journey more because you feel good.”
7. Leaving out insurance
Robust 50-year-olds may not think much about insurance. But at 60, buying a long-term care policy may prove difficult, says Benjamin Offit, a CFP at Offit Advisors in Towson, Maryland. “Health can worsen from 50 to 60, making a policy harder and more expensive to obtain.” And, while people may assume they’re too old for disability insurance, their peak earning years may still be ahead. “If you were to lose your income, or have a significant reduction, would it cripple your retirement plan?” Offit asks. Life insurance is also important, says Chen. “You don’t want loved ones to experience emotional and financial stress in the event of your untimely and premature death.”
8. Living the same lifestyle post-divorce
Divorce. It will always be the number one risk to retirement, says Stratton. Dividing assets and assuming individual expenses can be financially devastating. He urges his clients to envision their financial plan as a single person and consider how divorce will affect their long-term goals. “Holding on to your past lifestyle and budget is a common mistake. If you need to downsize post-divorce, do it sooner rather than later.”
9. Failing to update important documents
Do you have an estate plan, and is it current? “These plans help divide assets upon your death,“ says Rubio. “They determine who takes care of you and your estate should you become incapacitated or deceased, and who will care for your minor children.” Because things change, Daniel Flanagan, a CFP at Canby Financial Advisors in Framingham, Massachusetts, asks clients when their plan was last updated. “The frequent response is, ‘When our daughter was 2, and I was 30. Now she is 22, and I am 50.’” In addition, Joyce Streithorst, a CFP at Frisch Financial Group in Melville, New York, prompts her clients to review their wills, trusts, health care proxies, living wills, powers of attorney and beneficiary designations.
10. Letting the market spook you
Finally, do not make the mistake of trying to time the market, warns Joshua Hargrove, a CFP at Insight Wealth Partners LLC in Plano, Texas. By now, you may have amassed substantial assets. But whenever the market plunges, you lose sleep. Instead, filter out the noise, he advises. “People can suffer massive setbacks by making bad decisions at just the wrong time. Stick with your strategy!”
Patricia Amend has been a lifestyle writer and editor for 30 years. She was a staff writer at Inc. magazine; a reporter at the Fidelity Publishing Group; and a senior editor at Published Image, a financial education company that was acquired by Standard & Poor’s.