Nine Strategies to Employ in Your Peak Earning Years
Your fifties are likely to be a decade filled with both challenges and opportunities. You may have paid off your mortgage, you could be in the midst of college tuition payments, you could be on the verge of an empty nest, and it’s likely you’ve hit your peak earning years, as well.
If your paychecks are larger than ever, you should be saving more than ever, too. In fact, a study by Hearts & Wallets found that the most successful savers – those who were able to build a nest egg equal to ten times their salaries – did so by saving at least 15 percent of their income for a decade or more.
Whatever the fifth decade of life looks like for you, make it a priority to save as much as you’re able. These nine tips will get you started.
Tip #1: Use Yearly Bonuses to Become a ‘Burst-Saver’
You’ve probably always looked forward to your yearly bonus, and it likely helped you do things like buy a home or pay down debt in the past. Now, use it to become a “burst-saver” – that is, someone who socks away any additional income, such as bonuses, commissions, or even raises. Rather than ear-marking this above-the-norm income for a vacation or a new car, get disciplined about putting 100 percent of it into savings.
Tip #2: Don’t Forget Your Catch-Up Contributions
Once you turn 50, the IRS allows you to contribute more to your retirement accounts. For 2021, the catch-up contribution limit for your IRA is $1,000, for a possible $7,000 total contribution. For a 401(k) plan, those 50 and older can contribute a $6,500 catch-up in 2020 on top of the $19,500 401(k) plan contribution limit. Taking advantage of these catch-ups can super-charge your savings.
Tip #3: Keep Looking Toward the Future
Retirees today could be looking at retirements that last for thirty years or more. If you find your motivation to save flagging a bit, try envisioning yourself twenty or thirty years down the road. Will you have the nest egg you need for monthly expenses and health care costs? What about unexpected costs? Keep your focus on the future and, in doing do, you can remain motivated to continue cushioning your savings.
Expenses will pop up that are bound to tempt you to borrow from your 401(k) – especially if you’re putting kids through college at this stage of your life. However, your future self will thank you for resisting the temptation. Even a $10,000 loan in your fifties could interrupt your compounding and shrink your next egg by $100,000 or more by the time you retire.
Tip #5: Encourage Your Children to Graduate College in Four Years
Many college students take five or six years to graduate these days, while parents tend to budget for them to finish in four years. To ensure your kids finish as quickly as possible, encourage them to carry a max course load or to take summer classes at a community college to finish prerequisites more quickly.
Tip #6: Just Say ‘No’ to Parent PLUS Loans
If you’re a parent, it’s natural to want to help your kids afford college without taking on debt themselves, which may explain why more than 3.6 million parents are carrying $96 billion in outstanding Parent PLUS loans as of 2020. As difficult as it may be, it’s important to prioritize your own savings ahead of your kids’ college tuition bills. If you do decide to take out a loan on their behalf, try to limit it to an amount that you can repay by your retirement date.
Tip #7: Check Your Investment Fees
Do you know how much your investment advisor is paid? Are you footing the bill for fees you know nothing about? Research from Cerulli Associates has shown that more than half of investors are paying for advice or services they believe to be free. If you utilize an investment professional, ask them to spell out exactly what you’re paying so that you can determine whether it’s worth it.
Tip #8: Invest in Real Estate
If you’ve ever considered the idea of becoming a landlord, your fifties might just be the time to pull the trigger. If you happen to live in an area with strong population growth and low unemployment – or you’re in or near a college town – you’re likely to find high demand for rentals. Spend your earnings on property upkeep as needed but put the rest into savings.
Tip #9: Accept Professional Help
Are you taking advantage of all your retirement plan’s offerings? Many 401(k) plans include professional advice or offer things like target-date funds that can help you earn greater investment returns. Even if professional advice nets you a mere one or two additional percentage points per year, these earnings add up.
Need More Guidance for How to Build Wealth in Your Fifties?
While the tips above are helpful and you can accomplish them largely without professional assistance, one of the best ways to build wealth as you get closer to retirement is to create a retirement plan with a financial advisor.
At Resolute, we offer deep expertise to help you construct a plan that meets your unique needs and goals. If you’d like to begin a conversation about a customized plan to serve your financial future, please reach out to us today.