Learn how you can make the most of the money you earn during these prime decades.
Your 40s and 50s are a pivotal point in your financial life. These decades are full of opportunities to leverage your prime earning years to help boost your retirement savings. Additionally, it’s also an ideal time to strategize how you’ll put those savings to use in the future.
Here are five ways to take advantage of your prime earning years to make the most of your financial opportunities to help you maximize your retirement savings.
1. Calculate Your Net Worth
First, it’s important to understand the definition of net worth. While large homes and nice cars may give the impression of wealth, wealth is actually measured by comparing what you own with what you owe.
One easy way to calculate your net worth is to use an online net worth calculator, which allows you to compile your assets (house, retirement, savings accounts, etc.) and subtract your liabilities (mortgage, credit card debt, auto loans, etc.). The remainder is your net worth. Remember to calculate your net worth annually, as it may change from year to year.
2. Eliminate Credit Card Debt
According to the 2019 State of Credit report by Experian, the average American carries a total credit card balance of $6,629. Beyond simply impacting your credit score, carrying large balances from month-to-month and incurring interest siphons money away from your savings and retirement streams.
If you have revolving credit card debt on multiple cards, start by paying off the credit card with the highest interest rate. Also, identify the trigger points that led you to make those charges in the first place and take steps to alter that behavior.
3. Maximize Your Retirement Contributions
You’re in the stage of life when your child’s college tuition might be vying for your spending dollars. But it’s crucial not to divert funds from your retirement savings plan. In fact, after age 50, it’s advised to kick your retirement contributions into a higher gear.
As of 2020, the IRS permits individuals to contribute up to $19,500 yearly into a company’s 401(k) plan and depending on your tax situation you may be able to contribute up to $6,000 into an individual retirement account (IRA). After you turn 50, you may be able to contribute additional annual “catch up” payments of an extra $1,000 into an IRA and up to $6,500 extra into a 401(k), depending on your plan and your tax situation. By maximizing retirement contributions as soon as you’re eligible, you’ll give those additional funds more time to grow before you retire.
4. Consider Long-term Care Insurance
Long-term care expenses can drastically cut into retirement savings. According to the 2019 Genworth Cost of Care Survey, the national median cost for a private room in a nursing home is $8,517 a month.
Long-term care insurance can significantly reduce those costs. But, like life insurance, your ability to secure coverage depends on your health. Some experts suggest applying for long-term care insurance in your early 50s to find out whether you can obtain coverage. Insurers factor in your age as well, so your premiums will most likely be lower if you start coverage earlier.
5. Participate in Financial Planning Sessions
You may find yourself shying away from financial planning because you aren’t familiar with the elements or components of it, but whether you’re single or married, it is crucial to proactively participate in planning your financial future.
Don’t hesitate to engage trusted professionals — such as a wealth advisor, tax accountant, and attorney — to answer your questions and help you formulate and regularly re-evaluate your savings and retirement plan. It’s important to have that relationship established before you need it in a crisis such as the passing of a spouse or loss of income.
By leveraging the financial knowledge you gain during your 40s and 50s, you’ll be equipped to launch into the next phase of your life: retirement.
Learn more about growing your retirement plan, or contact a wealth advisor to discuss your individual needs.
