Longtime Reader Has Questions about Retirement
“I just turned 50 and I want to know what I should be doing for my retirement. How should I be investing? How do I know I am saving enough? Are there any specific moves I should be making?” – Andrew, Ormond Beach
Andrew, acknowledging that you don’t have it all figured out is half the battle! Over confidence has probably ruined more retirements than ignorance. If I understood more about your situation, I’d be able to map out a specific, step-by-step plan to help you achieve your goals. Meanwhile, here are five of the things I’d be looking at if I were you:
1. Keep enough cash on hand to cover most emergencies and any upcoming expenditures. Yes, I know that checking, savings, and money market accounts don’t earn exciting amounts of interest (unless .000000001% blows your hair back). Accept it. That’s the cost of keeping your money easily accessible and insured by the FDIC.
2. I’m not saying you’re old, but it’s not too soon to think about long-term care insurance. The premiums are much lower at age 50 than they are at 65. I’d recommend a policy with a limited number of premiums, say 10 years or so; if the insurance company gives you a rate hike later, you won't find yourself facing a lifetime of higher premiums. And, while you're at it, add an "inflation rider."
3. Pay off any debt with an interest rate of 5% or higher as quickly as you can – before you invest. (Caveat #1: if you’ve got access to a retirement plan at work, put in enough to soak up the employer's contingent contribution; Caveat #2: if you’ve got housing debt at a rate of 5% or more, and if you have some equity in your home, consider refinancing).
4. Any kids going to college? I feel your pain. Add up the expected total it’ll cost per child and divide by the number months until they start. That’s how much you’ll need to sock away each month.
5. Once you’ve accomplished #1 through #4, it’s time to super-size your payroll-deducted contributions to your employer-based retirement plan. At age 50, you can put away $24,000 for 2015! Do not consider other investments until you’ve hit the limit each year. Need some persuasion? If you put away $24,000 a year and earn an average of 7%, you could rack up an extra $634,000 by age 65! If you’re unsure about your risk level, ask the adviser handling your employer’s plan for some individualized help or call an independent adviser for assistance.