03 Jun 2021 A Financial Advisor Looks at 50
It’s not as exciting as a pirate looking at 40 but it’s still hard for me to believe that in just over 7 months I’ll be 50 years old. Sure, I’ve had more aches and pains in recent years and I’ve been noticing more gray in my beard (apparently that’s the prevailing aging indicator when you don’t have any hair!) but I’ve never really been one to let the process of aging get to me. That is until this week. On Monday, I realized that in January I’ll become eligible for full membership in AARP. Yes, that AARP, The American Association of Retired Persons. To be clear, I’m not saying that 50 is old. As a matter of fact, I believe it to be quite young given today’s life expectancies. It’s just that somehow, being able to get a discount on coffee and movies solely because of my age makes me feel, well, older.
With that said, I’ll be fine. I’ve have a 5 and 7 year-old to keep me young and life’s too busy to worry about my chronological age. However, there are some things that I might think about differently as I finish out my fifth decade on this wonderful earth. Many of them will involve making sure that I’m living deliberately by spending my time on things that are truly important to me like my family, my faith, my friends and my work. But some of the things I’ll be considering will be financial items that require some attention as I move into my 50s. I’ve started a list of these things, which I’m sure will grow, but in the meantime, I thought you might find it helpful if I shared it with you.
Put in place a plan for potential long-term care needs.
Not everybody should buy long-term care insurance but everybody does need to have a plan for how they would pay for the costs associated with a long-term care event. Such a plan could involve having enough investment assets to self insure or a willingness to sell a second home or tap into the equity in a primary residence to cover the costs. And yes, some people will want to buy long-term care insurance. Regardless of where you think you’ll land in this conversation, around age 50 is the time to put a plan in place. At that point, you’ve still got time to enact your plan and, if you do end up going the insurance route, premiums are more reasonable at 50 than at 60. Plus it’s likely that you’ll be in better health.
Review my life insurance.
You probably thought you’d tackled the life insurance thing back in your 20s or 30s. But if you’re like a lot of 50-year olds, you’ve got a few hundred thousand dollars worth of group term life insurance through your employer and another private, 20 or 30-year term policy that ends sometime within the next 3 to 6 years. Your plan may have been to let the term policies expire but I think it’s smart to review them before you let them go. Particularly if you’ve had a significant change in your health or if you haven’t been able to save as much as you’d hoped since you purchased the policies. You may have the option to convert them to permanent polices should you decide that you need coverage for a longer period of time than originally anticipated.
Also, group term life insurance is priced in age bands. That means it gets more expensive as you get older. If you’re in good health and anticipate needing to keep life insurance coverage for several more years it may make sense to shop the marketplace to see if it’s less costly to buy an individual term policy. If you decide to make the switch, make sure you don’t drop your workplace coverage until your new policy is in force!
Put more in my 401(k).
One of the benefits to having a few more years of experience is that you have the opportunity to save more in your 401(k) and IRA. All those young folks are limited to saving “just” $19,500 in their 401(k)s and $6,000 in their IRAs each year, while those fortunate enough to be age 50 or older can save an additional $6,500 in their 401(k)s and an another $1k in their IRAs. This can be a real benefit if you’re trying to lower your tax bill or sock a good bit away as retirement approaches.
Consider my portfolio asset allocation.
By now, you’ve probably got a pretty decent amount of money in your 401k, IRA and maybe a brokerage account. Picking your investment choices may not have seemed like a big deal years ago when your balances were smaller. But not now we’re talking real dollar amounts. Paying attention to the investments in your portfolio is always important but now its even more so. For one, in your 50s you’re probably starting to get a little closer to the point a which you want to start spending some of your nest egg so it’s important to make sure you’re not taking too much investment risk. On the other hand, if you’ve ever looked at a graph representing compound interest, you know that these are important years for your portfolio. This is time when it has the opportunity to grow the most (in dollar terms) so needs to be efficiently invested in the right asset allocation to fully take advantage of compounding.
Check in on my future tax diversification.
Speaking of that decent amount in your 401(k) and IRA. You may have done a wonderful job saving for retirement while reducing your current tax bill at the same time. Well done. Just keep in mind that if your entire investment nest egg is in a traditional 401(k) or IRA, every dollar you withdraw in retirement will likely be taxed at ordinary income tax rates. It may be that you’re in a very high tax bracket now and plan to be in a much lower one in retirement. If that’s the case, your set-up may be fine, or even advantageous, but there still may be things you should consider to give yourself more flexibility in how you pay taxes down the road. As Ryan wrote, this should always be a consideration, but now would be a great time to think about your potential tax plan in retirement.
Consider a plan to handle my mortgage.
At Beacon we’ve thought, talked and written about this topic extensively. As we’ve communicated in the past, there really isn’t a “right” way to tackle mortgage debt. However, you should always have a plan or philosophy for how you are going to handle it. Especially as you start to get closer to retirement. If you’re currently on track to still have a mortgage in retirement, an interesting question might be, how much would you need to pay extra each month to have your mortgage end in the same year you plan to retire?
I know that not everybody loves getting older. I also know that most people don’t love thinking through some of the topics on my list. That’s part of why we at Beacon exist. We’re constantly thinking about these things and working to ensure that our clients have crossed their t’s and dotted their i’s. Let us know if you’d like to talk through some of the items on my list or if you have a list of your own. In the meantime, if you’re already 50, maybe you can offer me some encouragement by sharing your favorite AARP benefit!