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You're 50. Suddenly retirement doesn't seem so far off. Even if you aren't ready to pursue a life of full-time leisure yet, you might be wondering if you're on track to retire in your 60s—or ever. What should your retirement savings look like at this point? And how close are you to matching that goal?
Age 50 is not the ideal time to begin thinking about retirement. Ideally, you should have begun planning or saving already. But 50 is a great age to take stock of your retirement savings—especially since you still have time to make adjustments.
How Much You Should Save by Age 50
Although there's no magic number that will guarantee you'll have saved enough money to retire worry-free, you can consider retirement savings guidelines that aim to help you figure out whether you're on track. Fidelity Investments suggests saving at least six times your annual salary by age 50 to retire comfortably at age 67, the age at which people born after 1960 are eligible to receive full Social Security benefits. This estimate assumes you are saving 15% of your income, plan to withdraw no more than 4% to 5% of your savings each year, and that you'll live a good long life to the age of 93.
The savings you'll need may be greater if you plan to retire earlier—or less if you continue working until maximum Social Security benefits kick in at 70. Lifestyle factors will also affect how much you need to save for retirement. Will you receive a pension from work? Do you anticipate major lifestyle changes, such as selling your home, traveling the globe or taking up expensive hobbies?
Factors to Consider When Saving for Retirement
Start with a gut check. Suppose you want to retire at 67. By the time you reach this age, Fidelity suggests that you have 10 times your salary in retirement savings at the time you retire and plan to withdraw 4.5% of your total savings per year (based on the total amount you have saved when you start retirement). If your salary is $80,000, your numbers might look something like this:
|Projected Retirement Finances on $80,000 Salary|
|Annual savings withdrawal||$36,000|
|Social Security benefits||$29,448|
|Retirement income||$65,448 or $5,454 per month|
Source: Fidelity Investments
To get a rough picture of what your own retirement finances might look like, ask yourself these basic questions:
What are your expected sources of retirement income?
- Estimate your Social Security benefits. How much you receive depends on your eligibility, earnings over the years and your age when you begin drawing benefits. Using our example of someone earning $80,000 per year, Social Security benefits would be $1,630 monthly at age 62, $2,454 monthly if they retired at 67 and $3,100 at age 70. You can get a personalized estimate of your projected benefits on the Social Security Administration's website.
- Get details on any pension program(s) you qualify for.
- Add in any sources of passive income (and consider developing passive income if you don't have any yet).
- Take inventory of your retirement accounts: 401(k)s, IRAs, Roth IRAs and regular savings you've earmarked for retirement.
What are your baseline monthly expenses?
- Review your budget or create one.
- Think about which expenses are likely to continue in retirement and which ones you can eliminate.
- Factor in the cost of any dependent children who will require support or college tuition.
What is your plan for housing?
- Will you have rent or a mortgage payment?
- Are you thinking of downsizing your home? Would you make money by doing so?
- Would you like to move?
- Are you eligible for a reverse mortgage?
Is health a concern?
- Honestly assess whether chronic health conditions might be a factor in how long you work or whether you're likely to require prolonged medical care.
- Consider the ongoing cost of maintaining your physical and mental health, including everything from long-term care insurance to medical care, a gym membership or prescription medications.
Even if your estimates are vague—or you expect to alter your plans by the time you retire—it's helpful to think through what your retirement might look like and how much it might cost. At 50, you still have time to save more, adjust the timing of your retirement or otherwise alter your plans.
How to Save More Money
What if your projected retirement savings just won't be enough? Here are eight tips for maximizing your retirement savings, starting now:
- Don't wait. The very best time to begin saving for retirement is when you're young, but the second best time to start saving is right now. Compound interest or investment growth will make the value of every dollar you put away now significantly larger by the time you retire.
- Take full advantage of employer-matched 401(k) contributions. You'll double your contribution on day one, which is an unmatched opportunity.
- Look into Roth IRAs. Although you can't deduct Roth IRA contributions from your taxes now, your future withdrawals will be tax-free. This means your Roth IRA funds go further in retirement.
- Automate your retirement savings. Having contributions deducted from your account automatically takes away some of the temptation to spend it instead.
- Eliminate as much debt as possible. The interest you're paying now may slow down your rate of savings. And the less debt you have in retirement, the less income you'll need.
- Create extra income to help fund your retirement. Even a little money from a side job or freelance gig can help you beef up your savings without cutting into your regular income.
- Look for ways to spend less and save more. Make a budget and stick to it, adjusting as needed.
- Talk to a financial advisor. Preparing for retirement can be a long, complex process. A financial advisor can help you make sense of your options.
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Thinking Through Your Future Finances
Although saving six times your annual salary is a helpful milestone for age 50, your retirement needs are unique to you. To understand how much you'll really need—and what it takes to get there—take the time to run actual numbers, then consider how your expectations match up against resources. At this point, if you feel that you don't have enough retirement savings, there are still steps you can take to get there.
As you're thinking about your future finances, don't overlook the value of credit. Good credit can open doors for you and help you keep your options open if you want to resize or refinance your home down the road. Monitoring your credit starting now will help keep you on the right path all the way to retirement.