Financial Planning at Fifty
“In fact, looking back, it seems to me that I was clueless until I was about 50 years old.” – Nora Ephron
The Internet may abound with articles about “Top 40 professionals under 40” or even “Top 30 under 30”, but we still recognize that age can bring wisdom. There are many well-known scientists and artists whose major achievements occurred at age 50 or later. For example, at 50, Charles Darwin published On the Origin of Species, which revolutionized biology. Likewise, Julia Child was 50 when her first cookbook came out and Betty White became famous when she joined The Mary Tyler Moore Show at age 51. The newsletter that eventually became the famous restaurant guide was published when Nina and Tim Zagat were 51 and Ray Kroc bought his first McDonald’s at 52.
Moreover, your 50th birthday provides new opportunities to secure your financial future. For example, it gives you access to the “catch-up” provisions that allow you to contribute extra amounts to retirement accounts each year, which are not available to younger earners. For traditional and Roth IRAs, the catch-up amount is $1,000, above and beyond your regular $5,500 contribution. For a SIMPLE IRA, the catch-up is $3,000 over your annual $12,500 limit. If you have a 401(k) or 403(b) plan through your employer, the catch-up contribution is $6,000 per year, in addition to the standard $18,000.
If your employer allows after-tax contributions to your 401(k) or 403(b) plan (not all plans do), you may want to consider contributing to this portion of the plan as well, as it can later be rolled into a Roth IRA. The IRS allows total employer retirement plan contributions, including employer and employee contributions, of a maximum $60,000 for 2017. If your plan allows, you can use the after-tax portion to contribute over and above your $24,000 salary deferral amount plus your employer match (if any) up to $60,000 this year, depending on your income.
At 50 you become eligible to join AARP and some organizations will start giving discounts to you at that age (although others will make you wait until you’re older). You may find some of the discounts valuable.
In addition, this is a great time to work with your financial planner to create a retirement plan if you don’t already have one. You probably have some ideas about what your ideal retirement looks like. Do you want to stay in your current home, or move to a smaller or less expensive home elsewhere? Will you keep working at a reduced schedule, or will you stop working completely? Do you have significant travel plans? It’s likely early enough that if there are any projected budget shortfalls in achieving these goals, you have time to address them by increasing your savings and investments.
If you don’t already have a will, power of attorney, or healthcare directives, now is a good time to get those in place. (If your documents are several years old, this is also a good time to review and possibly update them.) The power of attorney and healthcare directive both give guidance as to who can oversee your affairs in the event you are not capable, either physically or mentally, to conduct your own affairs.
Unfortunately, being incapacitated is a scenario that will affect many investors. According to the Alzheimer’s Association, 1 in 9 people (11%) over 65 have Alzheimer’s disease. Many married people appoint their spouse as their primary agent, but it’s a good idea to have contingents in place as well in case your spouse is not able to carry out your directives. Having these documents in place ahead of time, before you need them and when you are still capable of directing them, helps grieving family members and friends know your wishes. Even if you end up not needing the documents in the future, you’ll have peace of mind for yourself and your family.
As Oscar Wilde said, “Wisdom comes with winters.” Take advantage of the wisdom you’ve gained over the years to ensure that you are on track to meet your retirement goals.